How Redbox is Disrupting the Movie Rental Industry

Redbox, the DVD-rental kiosk company that is altering the landscape of an entire industry, has more than 15,400 vending machines in supermarkets, discount stores, Walgreens, and McDonald's restaurants across the country. Redbox machines carry about 700 discs with 200 titles, mainly recent releases, and rely on the $1 nightly rate to encourage people to experiment. Four million people have swiped a card at one of the kiosks in the past month.

Having started as a McDonald's subsidiary, the company was able to leverage its parent's heavily trafficked fast food locations to penetrate an already competitive marketplace. After bringing Coinstar on as a partner, gaining a strategic ally with a wealth of existing retail relationships, Redbox has emerged as Netflix's strongest competitor. Redbox's success has prompted Blockbuster to deploy 10,000 DVD kiosks of its own in a deal with NCR Corp, one of the world's largest providers of ATMs and cash registers. (This is yet another example of Blockbuster duplicating a successful market innovation. Is the company too cost heavy and set in its ways to come up with any ideas on its own?)

As a self-service solution that has experienced accelerated growth within an industry filled with large entrenched players, Redbox illustrates the power of leveraging customer-focused technology in physical locations. In making the video rental experience as simple and efficient as possible for the consumer, Redbox has disrupted an entire industry. The solution isn't perfect, but it fills a profitable niche within the broad marketplace.

Having retail partners like Walmart, Walgreens, and major grocery store chains, speaks to Redbox's significant reach. There are already more DVD-rental kiosks than video stores in the US. Optimizing its DVD selection according to customer behavior (key focus on new releases), Redbox adapts to each location and delivers a customized experience. David Deal, a marketing director at Razorfish, highlights the best attributes of Redbox's business model in a recent post on his blog Superhype:

Redbox is convenient. The vending machines are often found near the entrances of supermarkets and drug stores. It’s easy to combine a DVD rental with a quick trip to pick up some soda pop and chips. But Redbox is also banking on the impulse renter. It’s just too darned easy to pick up a DVD on the way out of the store similar to scooping up a magazine or candy bar at the check-out lane. The concept is brilliant.

Redbox is simple. The pricing terms are easy: you rent movies for $1 dollar a night. There are no complicated, multi-tiered pricing systems to understand. And the movie rental categories are simple. You don’t encounter the dizzying array of specialty categories found at movie rental stores, like Family Favorites, Hollywood Favorites, Movies about Psychotics, Just Fallen off the Top 10, Classics for Kids, Classics for Teens, Romances Pre-1950, and so on. Redbox has to keep the choices simple. You don’t have a lot of time to ponder your options on your way out to the car with a gallon of cold milk in your shopping cart.

Redbox is social. I don’t even think Redbox knows this yet. But renting and returning DVDs is a social experience at Redbox vending machines. I’m amazed at how many times strangers walk up to each other at a Redbox and seek out each other’s movie opinions or swap informal movie talk. (”You returning Revolutionary Road? What did you think?”) Maybe I shouldn’t be surprised given that Redboxes are located in places where people congregate.

For those of you who demand a wider movie selection, don't want to leave the comfort of your home to rent or drop off a DVD, or are able to stream movies directly to your TV, Redbox might not be your movie rental solution of choice. But, you can't argue that Redbox doesn't fill a void in the marketplace.

While DVDs will someday disappear, for now the market dynamics still work for Redbox: almost 90 percent of U.S. homes have a DVD or Blu-Ray player, while only a sliver download movies to their computer or stream them from the Internet, said Russ Crupnick, an entertainment analyst for market researcher NPD Group.

"Digital options and physical options can coexist," said Crupnick. "People think there's this balkanization — `Once I get Netflix, I never go to Blockbuster. Once I go to Redbox, I don't need Netflix.' That's really not the way that it works in the world." (via Associated Press)

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