Redbox Threatens Netflix

Discussion
Jun 30, 2009
George Anderson

By George Anderson

As a DVD rental destination, Redbox may not be as convenient as
Netflix. Of course, with rental kiosks popping up almost
everywhere, it is getting more so. It also costs only a buck to rent a
Redbox movie. That’s a pretty good deal in tough times and many see it as
a better way to go rather than paying a monthly Netflix subscription regardless
of how low the fees go.

“We are in locations where consumers are already shopping,” Chris
Goodrich, a spokesperson for Redbox, told The Post
and Courier
newspaper. “We are saving customers that
extra stop.”

The typical Redbox kiosk is said to generate $50,000 a year
in revenue after three years.

“We have grown at a phenomenal pace over the last six years,
and that growth is continuing even in the midst of a recession,” Gregg Kaplan,
chief operating officer at Coinstar Inc., the parent company of Redbox, said. “We’re
not seeing anything that’s slowing it down.”

Netflix, which used its mail-order subscription service to grab
large shares of the movie rental market from Blockbuster, now sees the potential
for those gains to slip away as kiosk operators such as Redbox are placed
at greater numbers of locations.

“By the end of the year, kiosks likely will be our No. 1 competitor,” Netflix
CEO Reed Hastings said. “There are already more kiosks in America than video
stores.”

Discussion Questions: Will DVD kiosks maintain their popularity and
hold onto their customers once the economy rebounds? With the growth of on-demand
and internet video, what’s the future hold for Redbox and its competitors?

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21 Comments on "Redbox Threatens Netflix"


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Scott Knaul
Guest
Scott Knaul
11 years 10 months ago

I can honestly say that I wasn’t sure if I’d really like Netflix. However, once I signed up I was an immediate fan. The convenience of not having to go anywhere and the elimination of late fees was great.

Now that I am a fan I see the kiosks in my local grocery stores and I love that convenience too! It’s great for the impulse viewing or to keep the kids happy.

I see the kiosk business growing and I see myself using it more and more, but it won’t keep me from continuing my Netflix account. I’m sure there will be some cannibalization but it could be a matter of just growing the entire market. The compelling next step would be if Netflix jumped into the kiosk business and allowed you to return your movies you received in the mail and swap them out for another on the spot and include the price in their subscription fee…maybe even add a few bucks for the monthly rate for the convenience.

Dick Seesel
Guest
11 years 10 months ago

Kiosks have barely reached a saturation point and provide plenty of short-term competition for Netflix (not to mention Blockbuster) in satisfying consumers’ demand for convenience. However, the Netflix formula offers not only convenience (if not instant gratification) but also breadth of assortment. If you’re looking for a DVD other than a best-seller, your choices on Redbox are limited and the $1 rental fee only works if you are willing to watch that DVD right away.

More relevant long term is the switch from DVD to digital delivery of movies and other entertainment. Reed Hastings of Netflix was profiled last week in the Wall Street Journal, and it makes important reading: The paradigm shift of digital delivery is what keeps him awake at night, because he knows it will upend the business model of Netflix, Redbox and Blockbuster over the next five years.

David Dorf
Guest
11 years 10 months ago

Yes, DVD kiosks will remain popular and Netflix will lose some business to them. But Netflix has its eye on streaming video. I use a Roku box ($100) that streams unlimited movies (based on availability) with my subscription. In the future, Netflix’s primary business will be streaming and they won’t need to worry about Redbox.

David Livingston
Guest
11 years 10 months ago

First, I think the economy has rebounded. But we have a new economy and people will be less likely to pay for something that is available for free. Now that movies are available for free on the internet and the fact than most library systems have an abundant supply of new releases, why would anyone pay to see a movie? Netflix, Redbox, and all the rest have been made redundant. It’s been several years since I actually paid money to see a movie on DVD.

Justin Time
Guest
11 years 10 months ago

First off, I have been subscribing my 81 year old Mom to Netflix for 6 years. The convenience and depth of selection has really made her life much more enjoyable since my Dad died.

That said, I was really floored when I visited her last weekend and saw this HUGE Redbox kiosk outside the local Walgreens.

How convenient! 24 hour availability of DVDs for only a buck.

While the depth of selection may not be there, the convenience sure is for customers who drive.

My Mom will continue to enjoy the latest Netflix DVD releases that arrive in her mailbox each and every Tuesday, except when there are holiday mail scheduling delays.

But for others who use Hollywood and/or Blockbuster, the switch is definitely in play. A buck a pop for DVD rentals, with 24/7 availability, can’t be beat.

Joan Treistman
Guest
11 years 10 months ago
There’s no reason to believe that the kiosks will lose in popularity because the economy rebounds. Redbox is a matter of convenience and cost savings, with current and popular movies available for $1.00. Netflix was an alternative to Blockbuster et al, while Redbox (kiosk distribution) is an alternative to Netflix. The dynamics of the marketplace, both in terms of channels and consumer needs, have changed. Once consumers are in the habit of selecting their films from a kiosk, Netflix doesn’t seem to be as big a bargain. Importantly, consumers select a film from a kiosk, when they want to see the film. There’s something to be said about choosing a movie to go along with your mood…for comedy, action, etc. And don’t forget the kids. What a wonderful opportunity for involving the children in an entertainment choice…at the vending machine, in the supermarket, when they are shopping with Mom or Dad. For those with different tastes (various genres and foreign films) and needs Netflix (and its huge inventory) and any clones will probably be preferred.… Read more »
Max Goldberg
Guest
11 years 10 months ago

In the long run, the video rental business will succumb to online, on-demand video viewing. But in the short term (for the next few years), both Netflix and Red Box will survive and thrive. Netflix recognizes this and is offering online downloads of movies, something Red Box has not done.

As the cost of going to a first-run movie has soared and the quality of the in-theatre experience has declined, DVD rental and online viewing will remain an attractive alternative.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
11 years 10 months ago

Redbox is a wonderful impulse buy solution for consumers. I see the assortment being more skewed towards children’s movies moving forward. Parents that are shopping with their children won’t mind spending $1 to keep the kids entertained on a cold or rainy day. Because Netflix is a subscription model I see Redbox being a supplement to Netflix and not replacing it. These two offerings can live side by side. Who knows, the two may partner in the future.

Steve Montgomery
Guest
11 years 10 months ago
Have never tried Netflix, but have talked to lots of customers using Redbox. What they like about it is the immediacy of the transaction–“I saw it, I want it, I’m taking it home.” There is no placing a wish list/order and waiting on the mail to deliver. They also like not having to join another “something” in order to fulfill their entertainment needs. We operated an early video rental service in several hundred locations when VCRs first came out. What we quickly learned is that the vast majority of revenue came from renting the top titles. Redbox kiosks are large enough to allow them to do that, but small enough to fit in almost any retail environment. I agree with Mr. Seesel that the long-term threat for all these services is the ability to stream video on demand. However, I believe that the ability to view it on the larger TV screens rather than the laptop and/or monitor will have to be made less complex than it is today for this to replace DVRs.
George Anderson
Guest
George Anderson
11 years 10 months ago

Count us as a family that dropped Netflix to buy from the kiosks. We just found even after downgrading our subscription on Netflix that too often, DVDs were sitting around unwatched while we continued to pay. In the end, it made more financial sense for us to visit Redbox, which has at least three kiosks within a half-mile of our home. We order the DVD online and then go to the store to pick them up. Not quite as convenient as getting it in the mail but at a $1 a pop, it’s a better value for our needs.

Warren Thayer
Guest
11 years 10 months ago

I sure wouldn’t put any of my money into these kiosks, with digital/online growing so quickly. Short-term buck, but no long-term future.

Kevin Graff
Guest
11 years 10 months ago

It’s hard to imagine a future where you rent any type of physical DVD, whether that’s online or through a kiosk. With the projected ‘death’ of CDs being 2012, can DVDs be far behind? While the short-term business model for kiosks may look good, I can’t foresee much hope for them beyond the next 5 years. Entrepreneurs get ready–you might be able to buy some cheap kiosks in a few years!

Robert Heiblim
Guest
Robert Heiblim
11 years 10 months ago
Kiosks will grow in popularity not only due to the economy, but due to the product cycle for DVD and other physical media. These sales are trending down, so look for retail to do what it always does in declining categories, find ways to use less linear footage while preserving the signal value of the offer. In this, kiosks are a good alternative rather than sending consumers purely to digital virtual sites. Some like Best Buy will do both as they get more utility out of their floor space and recoup area from a category or two (CD, DVD, etc.) while still offering consumers a reason to visit (which drove a lot of the positioning of the media in the past). On the other hand, kiosks cannot provide the selection, nor do they make up for the browsing and discovery or, in the case of retail like Gamestop, they cannot make up for staff of at least enthusiasts who can give recommendation. There is room in the market for all these approaches, though some are… Read more »
Lee Peterson
Guest
11 years 10 months ago

We’ve mentioned it a few times above, but the real discussion here is price, right? C’mon, Netflix has it all over Redbox in terms of rating systems, general information and even convenience, but for a buck? I’ll tell you one thing though, Redbox is not doing anything for fashion–I visited a grocery store late one Saturday night and was set back by the garb on the Redbox customers: dirty boxer shorts, too-small tank tops and beat up flip flops–I mean, one step below airport dress. So, for fashion’s sake alone, I’m for Netflix…let’s keep everyone in their pajamas at home!

Rick Myers
Guest
Rick Myers
11 years 10 months ago

Disadvantages of Redbox are waiting in line to return movies, boxes being full or not accepting returns, and jammed slots that won’t dispense movies. Not to mention the limited selection. The $1 a night price is great, but can sometimes be inconvenient.

I agree that streaming video will be the future, and will put the DVD business out on its ear. For now it’s OK, but like the hotel VHS rental service, it will need to reinvent itself or perish.

Ben Ball
Guest
11 years 10 months ago

Do not cry for Netflix–or Redbox for that matter. Adoption curves for technology are seldom greater than 50%. TV did not destroy radio. The internet has not destroyed newspapers–though that is a popular excuse for their decline. Kindles and books on tape did not destroy books and book stores. iPods have not obsoleted CDs. And streaming video will not obsolete DVDs.

Some portion of the population always seems to cling to the physical alternative. As is the case with so many consumer-driven decisions–not everyone does everything the same way all of the time. Some consumers have already adopted streaming video exclusively (though I suspect this group skews to folks with titles like ‘Director of Technology’). Most will eventually adopt the technology for some of their needs some of the time. And some will never adopt the technology at all.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
11 years 10 months ago
At 7-Eleven we tested movie rentals in the late 80s, but located the VHS storage drawers beneath the nacho cheese dispensers. New meaning for the term “cheesy movie.” True story, very drippy. You could look it up. I’m a NetFlix guy, used to the depth of inventory, online viewing, and two-day turnaround of this superior service. Also, NetFlix is cheaper. Keep the movies as long as you want with no extra charges. Redbox charges a dollar a day up to 25 days, at which point you own the disk. It’s also two trips to the kiosk instead of two trips to the mailbox. Redbox only replenishes their stock once a week, and even the customers “reserving” titles online are often disappointed. Get a broken or unplayable disk from NetFlix, and a new one arrives in a day or two. Yes, I said a DAY. An unplayable disk from Redbox necessitates another trip to the kiosk, and perhaps yet another to pick up a replacement disk. I’ve always been a proponent of in-store DVD burning. Set… Read more »
Ted Hurlbut
Guest
Ted Hurlbut
11 years 10 months ago

In the short term, I think Redbox will have an impact on Netflix on new releases. Their kiosks are built around the convenience, convenience, convenience. Still, Netflix will do just fine with the Long Tail of titles.

Matt Valle
Guest
Matt Valle
11 years 10 months ago

We were die-hard Netflix users until the Redbox at Jewel just kept chipping away at us. The big benefit is that it facilitates impulse movie watching, and has a good selection for kids. We eventually couldn’t justify our $19/month Netflix subscription anymore.

If we were still childless, we would still maintain our Netflix subscription for the outstanding selection. As is stands, Redbox does the trick for us and works out to be considerably cheaper given our movie rental habits.

Redbox will continue to gobble up share as becomes more saturated.

Tim Henderson
Guest
Tim Henderson
11 years 10 months ago

The recession obviously helped Redbox, as more consumers opted to stay home instead of going out. (BTW, the recession also helped parent Coinstar as more consumers took a hammer to their piggybanks). But even when the post-recession dawns, Redbox should do well. The reason: it’s convenient. Vending machines and kiosks like Redbox and Coinstar have achieved success by creating a way to access products/services in a manner that’s quicker, easier and more convenient than consumers had access to in the past. Those consumer motivators aren’t likely to go away anytime soon.

As for Blockbuster, it has a way to go to catch up. But with increasing competition, the need to differentiate the offering and provide more value becomes paramount. How that value is provided will likely determine who wins the DVD kiosk battle.

Joel Warady
Guest
Joel Warady
11 years 10 months ago

Redbox is doing a great job. They meet the needs of the impulse buyer with the top videos, in the most convenient places. Just the other day I walked through the Nashville Airport and saw a Redbox kiosk. Genius! Imagine having these in each airport throughout the country, and the convenience of renting videos in one airport, and returning the video upon landing.

Tell me again why Netflix is more convenient? I’m not sure I agree.

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