Could $1 Redbox Rentals Cripple iTunes?
Filed under: Distribution, Home Entertainment
Redbox continues to frighten other established movie-rental venues, as two new studies indicate that the kiosks are having a huge impact on the home video industry. Last week, Variety reported that a study by the research company NPD estimates that Redbox, who plan to add to their over 15,000 kiosks with additional boxes in grocery and convenience stores, will own 30 percent of the rental market by the end of next year. Currently, mail-order services like Netflix control 36 percent of the market, while traditional video chains like Blockbuster still drive the market with a 45 percent share.The fast growth of the company, which is owned jointly by Coinstar Inc. and a subsidiary of McDonalds, is making the studios very nervous. As reported here previously, Lionsgate, Sony, Disney and Paramount have all cut deals with Redbox, but the company was forced to sue Universal and 20th Century Fox when those studios attempted to strong-arm Redbox into signing a deal that would limit the rental company's distribution and kick profits back to the studios.
Despite the studios' fears, many industry experts say that Redbox's influence on the sale of DVDs is negligible (a stance echoed by Redbox's CEO), but the little red kiosks may have a more sweeping impact on Internet rentals. The L.A. Times blog Company Town reports that a new study from SNL Kagan estimates that online rental services like iTunes could be seriously crippled by easy access to Redbox's $1-per-night movie rentals. At $3.99 per rental, Internet vendors make a healthy profit. But when the numbers were crunched, Kagan found that if Internet services like Amazon and iTunes dropped their prices to $1 to compete with Redbox, subtracting delivery costs and the studio's cut of 70 cents per view, the profit for online rental services drops to between 8 to 19 cents.
"It could just have earth-shattering consequences to these services hoping to reach people through the Internet," wrote Kagan researcher Wade Holden, who notes that Internet services now make about $8 billion per year on 1.74 billion rentals. "It would be a colossal shift for the rental market to go from $8.03 billion to $1.74 billion - a change studios are likely not to get on board with."
The SNL Kagan study has been reported in a number of industry outlets, but one thing seems to be missing from the reports -- who, exactly, paid for the study. We all know that figures can be interpreted in any number of ways, and research organizations usually skew their data to suit the needs of their client. Was the study paid for by the studios, like the one reported by the Wall Street Journal that found that 25 percent of renters would buy fewer DVDs this year because they could rent them at kiosks? There's a lot of money at stake here, and this new study has a definite pro-studio slant.
Whatever the outcome, there may be good news for consumers -- even if they don't drop to $1, online and brick-and-mortar rentals companies may be forced to lower their prices to compete with Redbox. The downside is that this would hit the independent neighborhood video stores the hardest. By early next year, we should see exactly how this all shakes out.
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Reader Comments (Page 1 of 1)
9-05-2009 @ 9:46AM
This Is Me said...
Quote: "The SNL Kagan study has been reported in a number of industry outlets, but one thing seems to be missing from the reports -- who, exactly, paid for the study."
Do you mean to say "...who, incidentally, paid for the study" there?
That said, though I buy a lot of music online from Amazon and iTunes, I have never once rented a movie from either. I don't see myself ever doing it (mostly due to technical issues -- I like subtitles/captions -- but my internet provider, Comcrap, is "flirting" with bandwidth caps so I don't want to go there).
Besides, with my daily routine (three kids, busy self employment, etc.), Netflix's two-day turnaround suits me just fine. We usually have a couple of discs to choose from when my wife and I find that rare evening open to watch a movie. After going to the service back in the first year it started (1997, I believe) I've never used another walk-in rental place.
But I see the Redbox rental kiosks everywhere around here (central AR). A great idea, and probably physical disc rental's last gasp. The sole surviving mom & pop chain store (Movie Gallery, I think) down the street just dropped its late fees and rental time limits trying to compete. There's four within a 2 mile radius of my house, I think. Damn convenient, if that's your thing.
And, even being a Netflix user, I see the appeal; run up to Walgreen's for a prescription, let the kids go to the screen and pick a kid-friendly movie to watch that night, rather than queueing something on Netflix.
But a threat to iTunes or Amazon? Different demographic of user. The person who typically does that spur-of-the-moment rental (and I have to figure that's what a goodly portion of that kind of rental is) won't bother driving out to a kiosk anyway.
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9-05-2009 @ 11:27AM
Master X said...
I like redbox, I still buy Blu rays but I like to rent stuff before I buy it and theres a redbox by my house and by my work and I love the fact that you can return them to anyone.
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9-05-2009 @ 1:47PM
YouFaceTheTick said...
I cannot understand the appeal of Redbox. It just seems like a massive hassle to go to one and get a DVD from it when I can use netflix to deliver it to me (9+ years with them) or iTunes for a quick episode of something for $1-2. Why would I ANYONE in 2009 drive to a red box kiosk? Can't figure it out.
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9-05-2009 @ 7:00PM
Jester said...
See above. You're at the grocery store picking up a few things for dinner and the kids want to rent a movie to watch after and maybe you grab something you and the wife can watch after the kids go to bed. And you don't have to wait two days for it.
I love Netflix, don't get me wrong, it's just that Redbox has that impulse factor that's missing with internet rental and I sure as hell am not making an extra trip to Blockbuster to spend whatever ridiculous price they're charging nowadays.
Netflix's On Demand service is great, so long as you can watch it on your TV, but I'm not going to gather my entire family around the computer monitor for the evening.
9-06-2009 @ 1:55AM
YouFaceTheTick said...
Jester, we never go to the grocery store. We go to costco and the local produce market for fresh fish, fruits, veggies so I can't picture the scenario really. Also, we've got a Roku and a Mac Mini connected to our living room HDTV so we can download to it easily using our Harmony remote (or if needed the handy Mac BT keybaord).
I don't impulse rent. Ever. 9 years with Netflix and we go through over 18 (4 at a time plan) movies a month as we rarely turn on the TV for anything but DVDs/Roku/NFL. Almost every day of the week Netflix is sending movies/TV shows to us. If I really want something badly, I can usually have it to my house next day. But it's just a movie so it'll be there next week, next month, next year.
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9-06-2009 @ 2:02PM
MYMHM said...
God I HOPE Redbox can put the hurt on iTunes.
There's absolutely NO reason a digital rental should cost as much as brick and mortar rental. Their is no physical product to build into the cost (having to replace damaged discs for example), and the restrictions placed on the digital rental are severe (24 hours to watch it, plus there is usually additional hardware to buy to watch it on a TV).
Digital rentals SHOULD be long tail economic theory at it's finest, but it seems to have become another way to gouge customers, and a hamfisted way to claim there are alternatives to file sharing. They've made a service so aggravating to use (by design) it can only exist to "encourage" people to give up this streaming stuff and just go buy a disc.
I'll stick with Netflix for a majority of my movie watching, but Redbox kiosks are going up like crazy around LA, and I think I'll have to give one a shot.
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9-08-2009 @ 2:19PM
djkorova1 said...
People still pay money to watch movies?
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