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A case for Redbox

My family continues to enjoy renting movies from redbox as a low cost alternative for DVD rentals. I previously wrote about redbox making a splash in the video rental industry. Redbox has created a business with a unique model to meet an under-served market. Unlike the movies that go the dollar movie on the big screen, Redbox releases their rentals on the same day as other DVD rental providers. Consumer advocate Clark Howard wrote recently about a report that Redbox is suing Warner Home Video for wanting to delay release of videos for 28 days past other DVD rental providers. This is third such lawsuit created by Redbox against the controlling studios.

The issue at play here is that the studios don’t want their movies rented for a dollar because it brings down the perceived value of the movie and may hurt sales of DVDs. As Clark put it, why would you buy a movie for $15 when you can rent it 15 times for the same price? I think the studios are wrong in their thinking to delay product to Redbox and they should rethink their strategy. Consider these thoughts:

  1. Redbox provides the studios with greater reach because they can put a rental kiosk at more locations than a company using physical stores.  The more retail outlets there are, the greater the likelihood that a rental is made and the studio is collecting some royalty. I think the studios should be interested in the penetration rates of the kiosks and the impact the increased volume could have to their bottom lines.
  2. Redbox creates a new segment of customers. These customers are willing to give up a full service rental outlet for a reduced product price at a kiosk. Renting from a kiosk has trade-offs as customers may have to wait in a parking lot, wait longer in line as other customers self serve, or not be able to pick up other rentals such as video games in a single trip. This group of price sensitive customers was previously under served and should be marketed to so that it can be better sized for future offerings.
  3. Not all customers will fit into the price sensitive segment.  Some customers will still prefer to visit a store where they can leisurely browse titles, pick up drinks and candy, rent video games,or even get a full week rental. This group doesn’t care for parking lot kiosks and would rather deal with a real person behind the counter. They’ll pay $4 for a rental and not be concerned about the $1 price across the street.

My thought is that instead of fighting against the Redbox business model that the studios should embrace it as a new way to reach more customers. If they product quality content then rentals will follow. Customers will choose the type of rental that best fits their budget and preferences.