We've Got Hollywood Covered

Redbox Increases Demand for DVDs

Company keeps rental prices low through business efficiencies.

In recent weeks, there has been a wave of hand-wringing and even finger-pointing over the decline in DVD sales.

Some have aimed their ire at DVD rental, especially Redbox, as having a negative impact on the market for purchasing DVDs. But the answer to what is causing the decline in DVD sales is much more complicated.

Without a doubt, the primary culprit in the decline of DVD sales is the poor economy, which is forcing consumers to reduce purchases of everything — even essentials.

Secondarily, after 12 years of filling their shelves with billions of dollars of DVDs, consumers are feeling a natural saturation in a maturing market.

Third, many consumers are wondering what is next, whether Blu-ray, internet delivery or other advances in technology. This uncertainty is causing them to delay their purchases of the old standard-definition DVDs.

More importantly, in these tough economic times, Redbox is significantly increasing demand for DVDs, by bringing more consumers into the marketplace, by actively promoting theatrical releases to our millions of loyal customers and through our own direct purchases of DVDs.

One only has to look to recent history to put this picture into context. In 1997, with the launch of the DVD format, the studios significantly reduced the cost of purchasing a movie; that resulted in a dramatic increase in movie sales.

Fast forward to 2009: This year alone, Redbox customers will purchase an estimated 120 million DVDs at retail, which translates into approximately 14 percent of total DVDs projected to sell in 2009.

Buy rates among Redbox customers are comparable to the overall home entertainment population and, in fact, slightly higher than overall renters. Further, according to research firm NPD, 40 percent of Redbox customers report that they prefer to rent a movie first before buying the DVD and are using Redbox as a vehicle to “try before you buy.”

The simple fact is that consumer preferences for home entertainment are shifting, driven not by Redbox but by the economy, advances in technology and an ever-increasing focus on convenience.

In the face of this evolution, some brick-and-mortar outlets are offering only a "stone age" approach to the consumer (pun intended), while fighting to maintain the fading status quo.

Still, there are studios like Sony Pictures Home Entertainment, Paramount Home Entertainment and Lionsgate that have opted to adjust to these changes and are working with Redbox in supplying eager consumers with new releases.

As a result, over the next five years, Redbox currently estimates it will pay more than a combined $1 billion to these studios, helping to fund their new projects.

Recent deals with Summit Entertainment and NCircle Entertainment will provide consumers with greater access to their titles and the studios with increased visibility and reach to consumers.

The bottom line is Redbox is not seeking any special treatment. We pay the same price for DVDs as our competitors — we just charge consumers less.

How are we able to do this? Simply stated, it is the innovation that Redbox has developed and the efficiencies of our business model that allow us to provide added benefits to our customers.

Today, consumers have more entertainment choices. This greater competition for the consumer’s attention has led to a more affordable way to watch movies in the convenience of their own homes. And while our competitors continue to act as if their brick-and-mortar stores are the only rental option available, resisting the changing environment, Redbox chooses to respond by offering consumers the value and convenience they demand.

Learn more about Redbox’s campaign to save low-cost DVDs here.

A veteran of the video and entertainment industry with more than 25 years experience, Mitch Lowe was named CEO of Redbox in 2005 and president in April 2009. Widely credited for the development of the $1 per night DVD rental, Lowe has played a central role in growing the Redbox network from 12 locations to more than 15,000 locations nationwide. Prior to joining Redbox, Lowe consulted for McDonald’s business development group, heading the company’s DVD vending machine team – the team that ultimately created the Redbox concept. Before that, he helped to found Netflix, where he served as vice president of business development. In 2002, Lowe helped to bring Netflix public.