Summary
Redbox’s future will ultimately be affected by a number of variables, starting with whether or not the Universal (NYSE: GE), Fox and Warner Brothers studios succeed in their struggle to create a kiosk release window.
Analysis
With Paramount signing on with Coinstar's Redbox, there are now four studios working with Redbox and three working against the $1 per night kiosk operator. The Redbox cooperating studios: Sony, Paramount, Lions Gate and Disney , in which Redbox has street-date release agreements, accounted for about 40% of the U.S. DVD rental market during the first half of the year. The dissenting studios: Warner, Fox and Universal together also account for about 40% of the rental market.
Kiosks will account for almost 30% of DVDs rented within the next year, up from 19% for the first half of this year according to a recent NPD Group report. Currently, Blockbuster and other video rental stores make up 45% of the DVDs rented, and subscription services, led by Netflix, have a 36% share according to NPD.
Redbox has the right offer at the right time: $1 per night is a compelling marketing message for home entertainment during the worst recession in decades. The studios currently doing business with Redbox recognize this. Interestingly, the average Redbox transaction is actually more than $2 as most Redbox consumers do not return their rented DVDs the next day.
The studios recognize that by cooperating with Redbox they can get Redbox to destroy used rental inventory rather than redistribute for sale to consumers as second-hand. Sale of used Redbox DVDs is a huge issue for the studios as the practice competes with new DVD sales.
Redbox’s future will ultimately be affected by a number of variables, starting with whether or not the Universal, Fox and Warner Brothers studios succeed in their struggle to create a special kiosk release window. Some factors/issues among them:
Kiosk release widow: A big question for Redbox is whether a later release window kills its business. I believe that many consumers will wait a month to get a movie cheaper.
Future of high definition Blu-ray: As consumers adopt Blu-ray in greater numbers, which the studios are supporting with increasingly lower Blu-ray release sales prices, Redbox will also have to change its product mix. Higher-priced Blu-ray discs will change Redbox’s simple business model and ultimately its economic model.
VOD growth: Some studios counter that VOD is the best consumer proposition in terms of convenience and value. For $3 to $4 instead of $2, consumers don’t even have to leave their home.
James Meyers, MS. EBA consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
