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Redbox Roulette: Gambling With the Industry's Future
TheWrap recently ran a blog post by Redbox CEO Mitch Lowe titled, "We Are the Engine for Industry Growth." Lowe states that Redbox’s business -- based on $1 DVD rentals -- will "grow overall interest in and purchase of DVD entertainment."
As the CEO of a Hastings Entertainment, a retailer that pioneered low-cost rentals, I understand firsthand Lowe’s enthusiasm for $1 DVD rentals. Consumers love the price, and we love the increased business that $1 DVD rentals bring.
But there is one crucial issue involving $1 DVDs that Lowe fails to address -- and it must be acted upon if we want to prevent what is happening to the newspaper industry from happening to the entertainment industry: We must prevent the devaluation of new entertainment products.
We simply cannot give away products that cost hundred of millions of dollars to produce or else we will end up just like the newspaper industry, which now has an unsustainable business model.
Once the main product of an industry is artificially devalued, the negative economic impacts will ripple throughout the industry, impacting the workers and businesses that rely on the overall industry. Let's not create a modern-day "Goose that laid the golden egg" parable.
I believe there is a solution that allows Redbox to continue charging $1 for DVDs -- on a release schedule that fits in with the current model of the entertainment industry. The movie business has an established release model -- called a windowing model -- based on releasing movies, pricing tickets, and selling and renting DVDs. Instead of disrupting this model by renting $1 DVDs as soon as they become available, Redbox needs to compromise by integrating itself into this established industry model.
Here is how the release windows work: The studios initially provide their movie to theater owners, enabling them to provide consumers with national access to a wide variety of films. Then that content goes to the home entertainment window, where consumers can buy or rent a physical copy or an electronic copy of a film. The content then travels to the pay TV window, and finally to cable.
The Redbox $1 movie rentals cannot expect to disrupt this model without having disastrous consequences for the income streams of the movie industry.
For example, if new releases would be available for $1 rental, consumers would be encouraged to forgo watching a movie in the theaters and instead wait a few months. Consumers would be discouraged from renting from bricks-and-mortar video stores -- putting these stores out of business and reducing access to the thousands of movies that can't fit into a kiosk. Consumers would be discouraged from watching the movie on pay TV or streaming to their computer for $3.99 when the movie can be rented for a single dollar. Consumers might not buy a DVD if they know they can rent it occasionally for just $1. And the examples go on and on. If movies are devalued in this way, those who work in the movie industry will be directly harmed. Reduced industry revenues will mean that fewer movies are produced -- directly reducing the number of jobs available to people who work both in front of and behind the cameras.
These negative impacts are not theoretical. The decision by the management of newspaper companies to give away their product online is now having extraordinarily serious economic consequences -- not just for the management of these newspaper companies, but for the workers and reporters who have lost their jobs by the tens of thousands.
Mitch Lowe’s approach to $1 DVD rentals might make him a lot of money in the near term, but it will destroy the entertainment business and result in thousands of lost jobs in the months ahead. There is a way to prevent that from happening if Redbox would try to work with the entertainment industry instead of against it. $1 movie rentals have a role in the entertainment industry's "windowing model," and if Redbox truly has the consumer's best interests in mind, it will work with the studios on an appropriate release model. Now that would be a true win-win-win for Redbox, the movie studios and consumers.
Comments
Duh Says
I get it, you must be stupid or just naive. The answer to life progress isn't to stifle it just so people can keep their jobs. Maybe we should find a more efficient method of processing the films we make so they aren't so expensive. Maybe actors shouldn't get 10 or 20 million a movie. Maybe the pay structure of executives, and producers of studios and films should change. The point is, you are absolutely correct about the ramifications of what will happen because of Redbox. I also do not rent any movies from blockbuster anymore, and a local competitor decided to offer $1 movies new releases themselves. Sometimes when I can't find the movie on redbox I go to them. The answer though isn't lets see how much we can charge the consumer the answer is maybe our current business model is inefficient and outdated. Progress is more important than antiquated jobs and studios.
pj Says
This is simple greed to make as much money as possible. The studios can just stop producing DVDs if they are really getting hurt by Redbox.
They just don't like that a company (Redbox) has such power over them - disrupting their gravy train.
Too bad - let the chips fall where they may.
rwm Says
The comments about capping saleries for studio chiefs, etc.is shortsighted at best and shows a complete ignorance of the consequences of such actions. Like it or not this is a capitalist society we live in (the USA), and it works better than any other political or economic system ever created. Socialisim is not the answer.
A fair price for any given product based on the costs to provide it and the customers willingness to purchase it is the golden rule.
JustinW Says
To say the system needs to change is ridiculous! It costs millions of dollars to make a quality movie, whether you believe they are "quality" or not. The studios can't operate if the cost of entertainment drops so drastically. Redbox really is destroying the entertainment industry, it is very short-sighted of a company to create such a damaging effect on its own industry. Redbox knows that its days are limited and it doesn't care because they are making money right now.
Jon Says
So, it's "let's screw the consumer" all over again. Better yet, I can almost hear the studio heads say "$1 DVD rentals, as soon as the DVD is released for retail sales, will hurt OUR profits, hurt OUR bonus, will hurt OUR model" -- well, who cares about the studio heads making $5 Million a year in salary plus bonus, or the over paid actors making $10 Million a film? I don't care about them - they don't put food on my table or gas in my tank! Maybe they should take a pay cut, and start accepting a $50 K salary a year, like the rest of us! Then the cost to produce their product (movies) would be more reasonable. You say don't disrupt the movie studio mogul's model (which nets them billions of dollars each year in profits) --- I say DISRUPT THE MODEL as fast as we can (and let the chips fall where they may)! The heads of the studios have looked down from their Ivory Towers at the rest of us for a long time and they don't want their empire messed with in the least little way. They don't want their profit streams disrupted; they don't want the consumer to have any control or any say in what, when or how entertainment is delivered. I say, enough is enough! The reaction from the consumer is clear. We love the $1/night DVD rental price point and we love it immediately when the DVDs are released. If the studios cared about the consumer, then they would figure out a way to give the consumer what she wants, when she wants it, and how she wants it delivered. Quit trying to tell the consumer what they want or what they can have. Listen to the consumer and give the consumer what they want! Disrupt the model, force the cost of making the movies down to a more reasonable cost; cap the cost of making a movie, cap the salaries of the actors, cap the salaries of all who work in the movie industry, and most of all, cap the salaries of the studio chiefs! Give the consumer - the average person - a break! Make no mistake, I have no love for redbox either. There needs to be some serious competition for redbox, and soon - redbox chiefs' heads are way too big as it is; they need to be taken down a notch. I hope something comes along, quickly, to give an alternative to redbox and the stupid long lines waiting to return or rent a movie at one of their kiosks. Thank God redbox broke the ice and made the first significant move to disrupt the movie studio's stranglehold over the consumer. As for your comment about thousands of jobs lost if redbox's $1 DVD model is allowed to stand - what ever, there are hundreds of thousands of us loosing jobs every day!!!! This is the worst economic depression we have had since the 1930's. Get over yourself and help the person who lost their job 6 months ago, and ONLY HAS $1 to spend on entertainment! Don't force that person to give up milk and eggs and pay $3.99 to rent a new release just so the studio heads can continue their lavish lifestyles -- same for the overpaid actors and actresses --- they need to give up A LOT to help the rest of us! Movies are a great escape from the grind of daily life. Who can afford to go to the theater and spend $10 a ticket, plus $20 for popcorn and drinks, plus $50 for a babysitter ($80 total)!!!!! Renting a movie for $1 and returning it the next day, helps me feed my family, put cloths on their back and gas in my tank (the $79 saved by not going to the theater). Thus endeth the lesson!
Thom Says
You know what's really devaluing the industry? The terrible quality of the products they distribute. People already wait for the lowest cost alternative to seeing a movie in a theater because they feel like suckers after spending so much money and getting crap in return. If the quality of movies rose with the price of admission, more tickets would be sold to begin with and more DVDs would be sold and rented. And the marketing of theatrical releases is often misleading too.