Redbox model for now

With every action by the studios, Redbox gets more press, most of it good from a consumer standpoint. Picture president Mitch Lowe as a sort of “Captain Consumer” superhero, defending Americans’ right to rent new movies for $1. (Now, if he could just come up with a model for healthcare...)

There’s no question that Redbox is in the right place at the right time, the perfect consumer entertainment model for the worst recession in decades. $1 per night is a nifty marketing message, a great banner for Captain Consumer to carry, even though the average Redbox transaction is actually a little more than $2. (Times apparently aren’t hard enough for most Redboxers to rent and return the next day.)

The studios currently doing business with Redbox recognize this.

Redbox’s long-term prospects, however, are less clear and will be affected by a number of variables, just starting with whether or not the Universal, Fox and Warner Bros. studios prevail in their efforts to create a kiosk window. Among them:

• The vending window. One of the biggest questions surrounding Redbox is whether a window would kills its business. I think not, tending to believe that there are consumers who will wait a month for a movie in order to get it cheaper. But this would certainly require Redbox to revise its growth plan.

• Walmart and other retailers. I’m not privy to Redbox’s contracts with retailers, but analysts report that they are not long-term. Walmart is all about driving foot traffic, and if it believes Redbox is not doing this, either because there are too many Redbox locations more convenient to customers, or because of a window-related delay, Redbox will lose some of its prime real estate. This also will happen if the studios convince Walmart that it is losing DVD sales because of the kiosks and these losses outweigh other benefits of the foot traffic.

• Growth of Blu-ray and VOD. When consumers adopt Blu-ray in greater numbers, Redbox will also have to change its product mix. Higher-priced Blu-ray discs will change Redbox’s economic model.

Some studios like to counter the idea that Redbox offers the best consumer proposition in terms of convenience and value with the argument that, in fact, VOD is the best delivery platform on those accounts. For $3 to $4 instead of $2, consumers don’t even have to leave the couch.

Posted by Marcy Magiera on August 21, 2009 | Comments (1)