Redbox buying at retail? You don't say

UPDATE: 10/16-- Redbox president Mitch Lowe stopped by for a meet-and-greet on a trip to LA this week and we asked him straight out if the kiosk company has a deal to buy in bulk from Wal-Mart. His answer was not quite as blunt. He did acknowledge that Redbox has at least tacit agreements to buy product from some large retailers, who "put aside" stock for Redbox. In some instances though, he insisted Redbox shops with the general public. There are thousands of Redbox employees picking Universal product up from various retailers on street date, he said. 
He positioned it as not that big a deal for those employees to add Fox and Warner titles to their orders. In some cases, buying at retail is less costly than buying through distribution, he said, but there are added costs for labor and transportation.



Does anyone really think that Redbox is stocking 17,000 kiosks by sending a legion of junior employees into mass merchants across the nation on street date to buy Universal titles a handful, or 10, or 20, at a time?

And that the same thing will happen two weeks from now, when Warner and Fox institute delayed windows for the kiosk channel? That Redboxers will rush to Wal-Mart, Best Buy, Target and the like to snap up as many copies of Orphan and Ice Age: Dawn of the Dinosaurs as they're allowed to carry out of the store? 

Merriman Curhan Ford analyst Eric Wold made some headlines today with a note to investors that suggested Redbox could sign a deal with Wal-Mart, Best Buy  or Target  to buy new release DVDs in bulk, thus getting them quicker and cheaper than if it purchases rental inventory from individual retail stores. 

 I have to think that the reaction from home entertainment industry readers in the know was a collective shrug.

I do not have any definitive scoop on how Redbox buys the titles it can't get directly from studios or through wholesalers, any surveillance photos of pallets of DVDs going out of a Wal-Mart warehouse and into a Redbox truck. But it's long stood to reason that Redbox must have access to bulk inventory provided by a large retailer -- one that has a vested interest in keeping Redbox well-stocked. If you believe the kiosks help draw foot traffic to your store--and Wal-Mart and Walgreen's, as well as multiple large grocers and c-stores do--you would have no interest in having consumers disappointed in the kiosks when they got there. Note: Neither Target or Best Buy houses Redbox kiosks.

I do know that at least one studio involved in litigation with Redbox believes the same thing and was planning to take what steps it could to cut off this supply, though trying to dictate terms to a major retailers is known to be an often futile strategy.

I know I'll be at Redbox bright and early on Oct. 27 to see what's not there.

In any case, while analyst Wold is right that a sideways distribution deal with a large retailer could certainly put product in Redbox kiosks quicker, it's a jump to assume that it's also cheaper. Industry scuttlebutt suggests that Redbox is buying from a large retailer, but that the price for this convenience is paying cost plus some small percentage to make it worth the large retailer's trouble. No loss leadering here. 

Redbox then bears the cost for then making the product rental-ready, but it also has the opportunity to sell the discs used after the peak rental period.

The bottom line is that studios who refuse to sell DVDs to Redbox at the intial street date are  still realizing revenue from the kiosk operator, just not directly, and maybe not as much as they might if they made a direct deal.

Posted by Marcy Magiera on October 12, 2009 | Comments (5)