Study: Redbox Will Destroy the Entertainment Industry

http://newteevee.com/2009/12/08/study-redbox-will-destroy-the-entertainment-industry/

by adamhowell • 17 years ago

16 22 17 years ago

protomyth• 17 years ago

from the article: It should be noted that LAEDC’s mission is to “attract, retain and grow businesses and jobs for the regions of L.A. County,” so it has an agenda.

kp212• 17 years ago

I understand DVD sales from retail outlets being harmed. However, I've always wondered why rentals get harmed, doesn't Redbox have to follow the same channels as Netflix, Blockbuster and pay for DVD's that are rented? I've always wondered how the rental portion of the market in terms of revenues works.

pyre• 17 years ago

I don't work for Redbox so I don't know for sure, but I'm speculating that they maybe using the Krispy Kreme model (i.e. their growth is based on expansion). In other words, since they keep opening up new kiosks they can move product that is not selling well in one kiosk to another new kiosk, rather than it being a sunk cost if they buy product for an area and it doesn't end up selling well. At some point, they may end up collapsing in on themselves if they are not able to raise their prices to account for such write-offs (as their expansion slows). Though my theories could just be hot air since I neither work for them nor am I an MBA (or an economics major at that).

I know that they are looking to raise prices: http://www.insideredbox.com/redbox-begins-testing-higher-ren...

Blockbuster is trying to compete with kiosks too: http://paidcontent.org/article/419-blockbuster-adds-dvd-vend...

philwelch5• 17 years ago

Right now, there are two ways to "own" a movie:

1. Buy the DVD.

2. Rent the DVD and rip it onto your hard drive.

Selling is more lucrative than renting for some of the same reasons that renting is better than buying: selling happens at a higher cost and the end consumer gets a physically fragile disc instead of a readily backupable set of data. We're talking orders of magnitude here: the movie industry could sell a DVD to you, or they could sell it to Netflix or Redbox, in which case at least dozens of people can rip a copy.

Thanks to first-sale doctrine, Hollywood can't even price-discriminate against Netflix or Redbox. To recoup their losses, Hollywood would have to charge Netflix maybe $200 for a $20 DVD. First sale allows Netflix to buy the same shrinkwrapped DVD for $25 from whoever bought it from Hollywood in the first place. Even if Hollywood clamps down contracts against all the possible mass distributors, end customers could play arbitrage on DVD's. Netflix would probably even mail you the empty envelope to do it in.

Obviously, as more people choose door number 2 over door number 1, the movie industry's DVD revenues will diminish significantly. That's the threat of Redbox: whenever you push down the threshold of renting a movie, especially to a psychologically insignificant level, you make it more and more likely that "buying a movie" will drop down that order of magnitude. Blockbuster and Netflix have psychologically high barriers of entry: you have to sign contracts, carry around a card, drive to the store, pay for a monthly membership, or otherwise make some sort of commitment. Redbox? You put four quarters in the machine and you get a movie for life if you can run Handbrake. That's the same cost and the same level of commitment it takes to do your laundry, minus having to carry around laundry.

nym• 17 years ago

I had a terrible experience with Redbox, I liked the idea of avoiding the teenagers at Blockbuster, but when I rented a movie it was unplayable because it was scratched beyond repair. I suppose I could have contacted their customer service reps, but at the price of a rental vs. my time it just didn't make sense.

On the other hand, I wish I had shares in their company.

idoh• 17 years ago

No need to wish, they are part of a publicly traded company, cstr (Redbox is owned by Coinstar).

http://www.google.com/finance?client=ob&q=NASDAQ:CSTR

jfarmer• 17 years ago

Which is also one of those "Why didn't I think of it?" companies.

Coinstar makes machines you dump your change into and, for a percent of the transaction, prints out paper bills.

Free money! You build the machine, give the store a percent of the cut, and every (non-premium) store will let you put one of those up front.

They're in every Safeway I've ever been in. I'd expect to see them in Wal-Marts, Targets, etc. too.

philwelch5• 17 years ago

There's no obvious solution to the tragedy of the commons for Redbox and scratched discs: people will probably lie about scratched discs to get a free return or new movie if you make it an automated system, but people will also scratch discs themselves and not report it.

Netflix has a lot of these problems solved just by virtue of their membership model: they can probably write off the scratched discs people return because of how secure their revenue stream is, and all you get from falsely reporting a scratched disc is the same disc mailed to you. (Maybe Redbox could just give you another copy of the same disc if you report it as scratched?)

On a related note, does anyone else think Redbox is angling for an acquisition by Netflix? It's almost obvious how to integrate the business models. They even have the same color!

anigbrowl• 17 years ago

I don't really see why...$1/rental is cheap but then if you watch a lot of movies Netflix is arguably cheaper (and has a vastly better selection). I think they ought to be more worried about movie downloads for a monthly flat rate.

gfodor• 17 years ago

Study: On-demand instant HD movie streaming will destroy Redbox.

kierank• 17 years ago

"Acquiring Rights" for DVD rentals is vastly easier than getting the streaming rights to HD content.

philwelch5• 17 years ago

As you can tell by comparing the Netflix DVD library to the Netflix streaming library. And that's with all the money and influence of Netflix, plus a strategic partnership with Starz (which itself has clout).

ryanwaggoner2• 17 years ago

I think Redbox is part of a bigger trend: automation will destroy tons of service jobs and "hurt" a lot of established industries in the process. Blockbuster/Redbox is a good example. I can replace a 5000 sq ft store and 10 employees with a kiosk that takes up a few sq ft. Selection might not be as good, but it's good enough for most people.

Or take your typical restaurant. There's almost no reason that 95% of the waitstaff couldn't be replaced by ordering kiosks at each table. It would reduce errors and reduce costs. Or what about convenience stores? Figure out which items make up 90% of your sales, put them in an automated kiosk and put one on every street corner. You're now selling almost as much (or maybe even more) with dramatically lower costs.

I think it's a good thing overall, but there will definitely be some big losers economically from such a dramatic shift.

apsurd2• 17 years ago

Good thought analysis, but in general, there will always be people willing to pay to be waited on (in your restaurant example). If anything it would be more accurate to say fast-food workers would be most in trouble. Being a waiter is a skilled job afterall =)

ryanwaggoner2• 17 years ago

There may always be those people, but convenience and price win over personal service. Example: Wal-Mart.

philwelch5• 17 years ago

I ate at a place once where you ordered into a mic at your table and an overhead model train would carry your food straight from the kitchen. Apparently this was implemented as a cost-saving move during the Depression when they couldn't afford to hire servers, but they kept it around as a gimmick.

Japan already has massive vending machines to replace convenience stores, and supermarkets have more and more self-checkouts as quickly as store redesigns (and, I would imagine, grocers' unions) will allow.

zackattack• 17 years ago

Redbox = dvd for big screen and instantly accessible to the mainstream customer. It has already crossed the chas. When everyone has set top boxes it will be obsolete. But that is not happening for a long time.

JulianMorrison• 17 years ago

I realized yesterday, DVDs take the piss. A hand-span of plastic to store less data than you could fit on a micro-SD the size of your fingernail. This is an obsolete medium.

I wonder how soon the general public will see it?

Study: Redbox Will Destroy the Entertainment Industry

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