Redbox breaking path to buy videogames direct

PHYSICAL: Lowe says there are no commitments beyond test markets

By Susanne Ault -- Video Business, 12/3/2009

DEC. 3 | PHYSICAL: Redbox is in the early stages of its videogame testing, but it is already forging relationships with game publishers in the event the product does become a permanent offering.

The kiosk operator, best known for its $1 a night movie rentals, likely hopes to avoid getting into the same intense battles it faces with many studios over its cheap rental model. Currently, Redbox is testing $2 a night videogame rentals, which is an uptick over its movie charges but still considered a basement rental price for gaming, according to retail sources. The difference is due to videogames costing Redbox at least double or even more of what it generally pays for movies.

Gaming publishers may argue that such ultra low pricing will turn people away from the more lucrative buying of titles—similar to some studio fears. To encourage title purchasing, 20th Century Fox Home Entertainment, Warner Home Video and Universal Studios Home Entertainment delay their new movie releases to Redbox by about a month after they street at retail elsewhere. Redbox is now accusing these studios of unfair business practices in three separate lawsuits.

“We are talking early and often with the content providers of games so that we start out with as much understanding of what we’re doing,” said Mitch Lowe, president of Redbox, during the recent Reuters Global Media Summit in New York.

Lowe later elaborated to Video Business that Redbox has not yet decided if it will offer videogames on a long-term basis. But it’s best to be prepared, he said, and explore the possibilities of direct distribution relationships.

“At this point, Redbox is simply testing videogame rentals. If we decide to move in [a permanent] direction, Redbox will always look to create mutually-beneficial relationships with our partners,” said Lowe.

At this point, Redbox orders too few titles for publishers to strike direct distribution deals. There are 180 Redbox gaming locations spread between Reno, Nev., and Wilmington, N.C. But if Redbox does decide to make gaming a permanent fixture, the kiosk company would instantly become a major retailer in the category, with about 24,000 existing locations nationwide.

There has been speculation that Redbox would increase its game testing to 500 locations in 2010. But Lowe said there are no further commitments beyond the two test markets.

“Ideally they want to establish direct relationships with the publishers,” said one source. “So [Redbox] is being very careful and open with them. Most publishers are taking a wait-and-see approach.”

Fortunately for Redbox, it appears that publishers have so far been receptive to the idea of $2 videogame rentals. There is some hope that Redbox may be able to fill the void of many bricks-and-mortar game retailers closing down in recent years.

“Nobody has said they don’t like it,” added the source. “They are always looking for new avenues, and some of them think this can be another pickup of rental product.”

Additionally, games are different from film. People generally need more than one night to master a title and may likely buy the game after sampling at Redbox.

Meanwhile, Redbox continues to have problems offering Fox, Warner and Universal movie titles on street date. To get around the studios’ month-long delay, Redbox has been buying titles elsewhere to stock into machines as soon as possible.

But Redbox is proving unsuccessful in many cases, according to research conducted by rival rentailing organization Video Buyers Group. In sampling about 300 Redbox machines nationwide, few kiosks featured such recent releases as Fox’s Night at the Museum: Battle of the Smithsonian, Warner’s Four Christmases and Universal’s Funny People in the days near the titles’ street date.