Redbox gets bigger

UPDATE: Yet another reason for program suppliers to find a way to work with Redbox: The kiosk within the next year will be in all 2,600 Kroger grocery stores, up from about 200 Kroger stores now. The grocery channel doesn't do a ton of business in sell-through, so perhaps this expansion will be more palatable to studios than kiosk in Walmart stores.

Fact: Redbox is a consumer-driven phenomenon.

With their TV cabinets full of shiny DVD packages collected over the last decade and their wallets less full than they used to be, consumers are returning to the old habit of renting videos, mostly in the form of physical DVDs and Blu-rays. Consumer spending on rentals was up more than 8% in the first half of the year, according to Rentrak, due largely to Redbox.

So why is it that some studios can justify every possible experiment in electronic delivery as giving consumers what they want, when they want it, but conveniently forget that consumer dynamic when it comes to Redbox?

Studios are beginning to fall into two camps when it comes to Redbox: Those who get it, and those who don’t.

Those who get it (not necessarily like it) are the pragmatists who are finding a way to work with the kiosk operator to some advantage, despite the lower profit margin and possible potential for sales cannibalization. They see consumers, who are changing their consumption behavior, possibly for the long run.

Sony may realize close to a half-billion dollars from Redbox over the next five years on a deal that gives it representation in Redbox kiosks that’s about 150% of its overall market share. And it minimizes the resale of used discs.

I wonder what kind of market share guarantee the second studio to sign a distribution deal with Redbox is going to get? Or No. 3?

Disney also is looking smart as it pertains to Redbox, having struck a deal to discount its DVDs in exchange for “limiting previously viewed copies in the marketplace,” according to studio CEO Bob Iger.

On the company’s second-quarter earnings call, Iger said that it’s wise to support the rental channel, since consumers are showing this is what they may be preferring at this time.

“We saw trends in the home video business [where] growth in the industry is in rental, both digital and in the rental of physical goods, and there is the same decline in sell-through,” said Iger. “I think some of that is economic driven. I also think you have a marketplace where people aren’t looking to build up their libraries as much as they once did. As product gets more convenient on a rental basis, that will affect rental in a positive way. Renting at a low price is very convenient.”

Meanwhile, in Time Warner’s earnings call, CEO Jeff Bewkes was sounding more like he doesn’t get it, with the suggestion that Redbox should fill a niche for renting films in a window after their general home entertainment release.

Looks like Warner is hoping Universal will prevail in that studio’s litigation with Redbox over the creation of a later vending window.

For that to happen, the court would have to modify the First Sale Doctrine.

Even if it does, studios will have to deal with consumer demand, which may not be what the studios want it to be.

Posted by Marcy Magiera on August 3, 2009 | Comments (7)