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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.

Redbox makes a splash

I wrote a set of articles about cable/satellite alternatives that explored online and mail order alternatives. Recently though another competitor has entered the space in Redbox. Redbox has a different business model. Put a video dispensing machine at a retail location where people (potential customers) will be anyways. This might be a grocery store or a drug store. Stock the machine with collection of DVD movies and offer them at a price that would attract a sale or create an impulse buy (rental).

The LinkedIn profile for Redbox states they have over 500 DVDs available in each machine. Each selection is offered at $1 per day plus tax.  Selection are updated each Tuesday.

Here are some other stats from a NY Times article:

  • Today there are over 15,400 machines in network
  • A new machine is being installed at the rate of one per hour
  • Sales exceeded $150 million last quarter

My family has used Redbox three times in the past month. The transactions were all very smooth and the price was certainly right. There is no doubt that we’ll continue to use this service.

Redbox appears to be hitting the market at the right time with a low priced product when many people are cutting expenses.  Their price point isn’t even in the same ballpark with competitors like Netflix and Blockbuster.  So keep an eye to see how Netflix and Blockbuster respond as Rebox carves out share of the overall rental market. Will the two giants respond by lowering their price points on certain rentals to appeal to the price sensitive customer? Or will they look to differentiate based on service and selection to justify their higher price point?

What’s your take? Have you used Redbox? How much market share do you think they can gain?