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Redbox Threatens Netflix in Video-Rental III: Rise of the Vending Machines!

by June 23, 2009

Netflix has long been recognized as the top online video-rental business. Despite competition from perennial business-model imitator Blockbuster, the competition continues to be stymied. But wait – one decidedly low-tech business Redbox, is growing at such a rapid pace it poses a serious threat to Netflix. This relatively new competitor has been quietly laying red vending-machine boxes all over America, over 15,000 by its latest count and its growing fast.

Yes, Netflix has changed the way many of us rent movies. Doing it by mail seems like such a no-brainer that you’d think it would have been around a long time ago. And Netflix seems poised to stay ahead well into the future with a video on demand service. The mail-order-movie-rental biz has former heavyweights like Blockbuster re-tooling for a new business model by imitating Netflix.

But Redbox does video rental a little differently with red kiosks, essentially vending machines that can stock up to 200 movie titles on DVD. The red boxes are popping up at an alarming rate for Netflix CEO Reed Hasting.

"By the end of the year, kiosks will likely be our No. 1 competitor," Hastings said in a recent conference call. "There are already more kiosks in America than video stores."

Redbox is a true budget minded video rental option and we now have exactly the kind of economic climate to help its business to grow. And growing it is – at an average of one new Redbox kiosk per hour, dispensing $1 per-night DVD rentals to members.

Expect the video rental biz to continue heating up this year. People are staying home rather than going and renting rather than buying disc media. According to PriceWaterhouseCoopers Americans spent less buying DVDs and more on rentals last year. The trend is expected to continue.

Redbox is in an interesting business story. It began largely as an experiment by McDonalds when it was trying different things to help it grow beyond burgers. In 2002 it was testing out a new business strategy it called “automated retail”. Essentially vending machines, the fast food chain tested vending machines of every ilk, it even tested a vending machine that could make its signature French Fries.

In 2005 and 2006 Coinstar Inc. bought out McDondalds and other businesses share of the Redbox coin-op video-rental business. Coinstar’s strategy seems to be to places its red boxes everywhere. With a capacity for only 700 discs and 200 different titles, Redbox isn’t making its mark with a huge inventory of discs. But all it needs are the top, most rented movies – the ones everyone wants to rent anyway.

Now Blockbuster (the Microsoft of the video rental biz) is going to copy Redbox by trying its hand renting movies through its own kiosks. The brick-and-mortar video giant promises 10,000 DVD kiosks to be unleashed on the public in April through a deal with NCR Corp. the company that makes ATMs and cash registers. Who wants to take bets that Blockbuster is going to fail to take over Redbox’s market share?

It’s interesting that in an era of high-speed digital content downloads and streaming video on demand – the humble vending machine is making a comeback.

What’s next – vinyl record albums?

About the author:

Wayde is a tech-writer and content marketing consultant in Canada s tech hub Waterloo, Ontario and Editorialist for Audioholics.com. He's a big hockey fan as you'd expect from a Canadian. Wayde is also US Army veteran, but his favorite title is just "Dad".

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Recent Forum Posts:

j_garcia posts on June 26, 2009 17:37
lsiberian, post: 587695
I'm showing Gran Torino as available?

But from what I hear it's an own worthy film

It is now, but not when it came out. My dad lent it to me and I ended up buying it.

And the Netflix turnaround is usually the day after I drop it in the mail. So I get my movies in a 2 day turnaround

Same here.
lsiberian posts on June 26, 2009 17:24
AccessGuy, post: 586207
First, Red boxes have limited selection and the onus of returning them the next day removes the convenience factor, and this is before even counting waiting in line during busy times. Second, the two advantages that Blockbuster has for me over Netflix are:

1) There is NO premium for renting a Blu-Ray vs SD DVD in Blockbuster, while Netflix charges an extra buck. Since more than half my rentals are blu-ray (and that percentage will probably rise as more people switch to high def) that represents a significant savings to me over the course of a year or longer.

2) Blockbuster allows you to return DVDs to a local store, which cuts down on the recycling time for them to mail you the next item in your queue.

3) While online TV over larger monitors (mine is 24") has certainly improved, I find that I only watch TV shows that I missed, via Hulu etc. and would not watch an actual movie…that's what my Man-Cave Home Theater is for!!

I've never tried block buster, but doesn't it cost more?

And the Netflix turnaround is usually the day after I drop it in the mail. So I get my movies in a 2 day turnaround
lsiberian posts on June 26, 2009 17:20
j_garcia, post: 586502
It was exactly $1 more a month for me to receive Blu with the 1 at a time plan. I don't think I could watch more movies than that. That is about 3 a week or ~12 a month for $10 a month. So even for those weeks where I might not get to the movie right away and end up with only 2 that week, it still is around $1 a disc.

With the exception of a few big movies recently such as Gran Torino, I haven't had any problems getting new releases quickly, often the week they come out. A movie that I wanted was not in the local wharehouse so they sent me my next movie AND shipped the one from the other wharehouse with a note saying I would receive both but one would be delayed. I had 2 at a time for 2 weeks for free.

I'm showing Gran Torino as available?

But from what I hear it's an own worthy film
ozmedia posts on June 24, 2009 13:48
What’s next – vinyl record albums?

“What’s next – vinyl record albums?”

You bet, artists are already releasing vinyl again, though as a novelty it is desired due to superior sound to most of today's rushed, overcompressed engineering. (They aren't ALL Telarc anymore).

Perhaps seeing a demand for higher quality recordings, labels will again be pushed to produce better recordings, engineering will become less rushed and of higher quality as they realize not everyone wants to overcompress music to 128kbps MP3's for an i-Pod through ear buds. Well, I can dream anyway.
j_garcia posts on June 24, 2009 12:54
allargon, post: 586465
Netflix is a lot more than an extra buck a movie for Blu-ray these days. And the casual $5 plan is a pain for new releases. Netflix seems to be heavily focused on streaming. Why any Blu-Ray fan defends them is beyond me. They take forever to get new releases to long standing customers. Blockbuster Online isn't much better, but at least it's cheaper.

It was exactly $1 more a month for me to receive Blu with the 1 at a time plan. I don't think I could watch more movies than that. That is about 3 a week or ~12 a month for $10 a month. So even for those weeks where I might not get to the movie right away and end up with only 2 that week, it still is around $1 a disc.

With the exception of a few big movies recently such as Gran Torino, I haven't had any problems getting new releases quickly, often the week they come out. A movie that I wanted was not in the local wharehouse so they sent me my next movie AND shipped the one from the other wharehouse with a note saying I would receive both but one would be delayed. I had 2 at a time for 2 weeks for free.
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