Why All the Rage at Redbox?
Redbox, the dollar DVD rental kiosk company, is the “rage” of both consumers and Hollywood. With cheap rentals and convenient locations, consumers are rewarding Redbox with phenomenal growth.
Inciting a different type of rage, with DVD sales down by 12 percent to 18 percent, many movie studios view dollar rentals as a primary culprit that is cannibalizing movie sales.
Redbox has an innovative business model. For a dollar a night, its vending machines rent the latest Hollywood releases, as well as an eclectic mix of past hits. With many locations (there are 10 within a five-mile radius of my home), movie-watchers can conveniently rent from one kiosk and return to another. Retailers love hosting Redbox machines as it drives traffic to their stores.
Many movie studios are in a tizzy because they feel that consumers who would have ordinarily paid $20 or so to buy a DVD are now foregoing these purchases in favor of renting the movie for a dollar. This, studios claim, is slowing sales and lowering the value of DVDs (prompting some to wonder if DVD prices should be reduced to retain customers).
With DVD sales accounting for on average 70 percent of a film’s profits, the palpable anxiety of studio executives is understandable.
Do you really believe that dollar rentals are causing consumers to think, “I would have purchased but now I am going to rent?” Sure, some might, but I’m not convinced that Redbox is a major factor in the demise of DVD sales.
Those who purchase DVDs do so in large part to be able to repeatedly watch the film in the future. Dollar-a-night rentals do not provide this key attribute that movie buyers highly value. Actually, consumers who would have purchased are more suited to rent from a subscription service such as Netflix (which has experienced a 26 percent growth in subscribers in the last year) since there is no return due date, and it is easy to re-rent a movie (just put it at the top of your queue).
Redbox is more of a cannibalization threat to physical rental stores and mail subscription services.
So what should studios do right now?
Chances are that DVD sales have fallen victim to the recession and increasing entertainment options for consumers. One step to further reduce general “rental versus purchase” cannibalization is to ask rental companies to only stock the “basic” DVD.
This will further encourage aficionados, who highly value, say, the director’s cut, to purchase. Additionally, given the shift from purchases to rentals (due to the economy), paradoxically studios should consider raising DVD prices. Higher profits will be earned from sales to diehard home viewers, as well as to rental companies.
While only a full data analysis can tell the full picture, my feeling is that the home entertainment divisions of movie studious are facing far more serious problems than dollar rental kiosks located at local Ralphs grocery stores.
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Shaun O'Rourke Says
As a first time film producer who just locked up a straight to dvd distribution deal. Redbox wasn't even on the table in my deal due to the low profit margin in their business model.
My film titled "Butchered" will be available at Blockbuster, Hollywood Video, Netflix, Amazon and half a dozen other outlets.
I can't speak for studios. I would guess the studios do not want to make deals with Redbox because the low profit margin, but are scared they will miss out on a market share so they do anyway.
Just my thoughts!
Shaun O'Rourke
Producer
www.ElevenBravoProductions.net
jamison71 Says
Red box is convenient and cheap!
Sonya Says
Sorry John but I completely disagree with you. Redbox isn't what is devaluing DVD sales- incredibly bad movies is what is devaluing them! I can't tell you how many times I've walked up to a Redbox machine on the way into a Jewel grocery store in Chicago, looked at the selection of titles and walked away. I wouldn't even pay a dollar to rent what's on the market now and that would include going into a video store.
I stopped renting years ago and only purchase DVD titles. I'll wait for the double disc because it will have the behind-the-scenes extras like the making of that are most important to me. Starting next, I will begin the Blu-ray disc replacement as long as the title has the extra goodies.
People have far more entertainment distribution options than ever. I watch all of my TV shows on my laptop online at Hulu, YouTube, etc. This number is growing and will get bigger. Sony has introduced Crackle that hosts Sony movie and TV shows. I watched "S.W.A.T. online and enjoyed it. I''ve watched it twice and plan on buying it next year.
Raising the prices is totally wrong. Low prices high volume would increase the likelihood of more sell through titles. Best Buy constantly has sales of DVD titles for $4.99. That's a great bargain and someday when the economy rolls again, so will the sales. Fighting the consumer and taking away easy choices like Redbox and online viewing is not the way to go.
Jon Engen Says
While I can't speak from a studios perspective I can speak from an independent video store owners perspective. I am of the opinion that red box as well as other kiosk are devaluing packaged media as well as much of the entire entertainment industry their business model and pricing is affecting sell-thru, rental rates, previously viewed sales, local economies, rentailers, retailers, etc.... you get the picture. By having the $1.00 pricing they have taken the value of a DVD and shrunk it from every aspect and for what? MARKET SHARE. Is this good for consumers? In the short run yes maybe. In the long run I believe not. I think by the devaluing of packaged media alot of what happened to the music industry will be happening to the entertainment industry. If you remember back when we used to have record stores, service stations, toy stores, hardware stores,etc.. back when you used to get service, well I believe this is the turning point for video stores accross the country. If the perceived value of packeged media is aloud to decline down to $1.00 not many video stores could sustain this, as you should be able to see in all the video stores accross the country that have closed since kiosk have begun, while yes I do understand that with time comes innovation and I agree that there is a place for kiosk in this industry (windows ie.. $1.00 movie theatre) I don't think redbox is helping the entertainment industry with the model they have in place. If redbox succeeds in keeping their pricing and business model intact the impact on your local video stores who are big parts of communities, they pay property tax, support local teams, provide jobs, They offer breadth of titles,and can service the hell out of you just like your local service station or hardware store did and who have been an intrigal part of the movie industry will have a hard time surviving. I know some video stores out there can compete with anybody including redbox at any price with the other revenue streams they have available like tanning and the likes along with copy depth, service etc.. I just believe that the impact redbox is having starts with your local video stores first and it ends with this affecting every aspect from studios, labor unions, quality and quantity of movies being made, distributors, industry magazines, actors, writers, everyone in this industry. It would be easy to say that it's just the economy that is affecting the entertainment industry but I think it goes further then that I think the toll that the pricing of redbox and their business model is taking on everyone is just now being felt. I believe they are just in market share mode right now and once they have the market share they will be able to then raise their rates and dictate to the industry like a wallmart. I feel this is a broken business model and that it eventually is going to erase a few different entertainment options that consumers have. I wish consumers would wake up to the fact that possibly a nights worth of a family's entertainment, a movie that takes untold millions to make is possibly more valuable then a bottle of pop out of a vending machine. I hope the studios succed in their efforts in protecting the video industry.
grumpyfan Says
If the big studios are really concerned about sales of their products, then instead of going against them, much like the RIAA and music business did against MP3 and P2P services in the recent past, why don’t they find a way to work WITH them. Thanks to computers, iPods and high speed internet, digital media is the preferred medium for the upcoming generation. Physical media like DVDs and now Blu-ray discs, while accepted for now, will eventually go the way as the 8-track, cassette tape and even records (LP).
So, here’s where my “creative (imagineering) mind” kicks in. Redbox has already established a strong foothold and consumer connection with their service. Why not find a way to leverage that consumer connection (aka: sales lead)? Make it easy for the customer who just rented your product to buy it, either physically, or digitally. Offer the customer the option of buying a new (sealed) version of the same film, deliverable via regular or expedited delivery. Or, offer a download of the film via the email address already in their system. They could do this two ways, one an option on the kiosk at time of return, or via email on the return invoice/notice or special email with a link to purchase the video.
Hopefully someone in Hollywood at one of those big studios will wake up and see what’s happening here. The consumer wants a cheap and easy way to get their entertainment, and they want it in the format that’s most suitable and convenient to their lifestyle. Find a way to meet that need/demand, and your sales will go through the roof.
Posted at: http://grumpyfan.wordpress.com/