DVD kiosks up marketshare
Five years after renting its first DVD, Coinstar Inc.’s Redbox video-rental kiosk business hit the half-billion rental mark in August. The company, the first fully automated DVD-rental provider, has 22,000 machines in a variety of retail locations and processes about 80 transactions a second on Friday nights.
Redbox and its competitors, including NCR’s Blockbuster Express and DVDPlay, now own 19% of the rental market compared with 36% for Netflix and other rent-by-mail services, and 45% for traditional rental stores, according to data from the NPD Group.
“These kiosks are a game changer,” said Eric Handler, senior analyst for MKM Partners. “They are impacting traditional rentals, Netflix and video-on-demand, and it’s becoming the way the industry is evolving. And they have some interesting contracts with supermarkets and drug stores.”
For retailers and consumers, the kiosks are a win-win. Retailers view the kiosks as traffic producer and are using coupons and special offers to induce trial. Walgreens recently ran a promotion offering a free rental from its Redbox kiosks with the purchase of two boxes of cereal. Redbox runs its own free rental coupons for Monday nights. Consumers like the convenience and the value, particularly in this tight economy. At $1 a night, the kiosks are hard to beat.
Sony and Lionsgate are on board and have signed multi-year agreements to supply Redbox with new releases, and Viacom’s Paramount has agreed to work on trial with Redbox until the end of the year. Paramount has the option to extend the deal to 2014 after the trial expires.
Other studios, afraid that $1 rentals will create downward pressure on the industry’s price structure and hurt profits from both DVD sales and rentals, aren’t playing ball. Universal, 20th Century Fox and Warner Brothers are refusing to sell new releases to Redbox until at least 28 days after they arrive in stores. Redbox has filed suit against the studios citing antitrust violations, and has vowed to continue to offer consumers the latest releases even if it has to purchase the DVDs at retail prices.
Redbox claims that its kiosks don’t cannibalize sales or rentals of DVDs and cites internal research that indicates 20% of its kiosks’ volume comes from consumers who did not previously buy or rent DVDs. “Hollywood is trying to protect their revenue stream so there may be a long and protracted battle,” said MKM’s Handler.
Despite the legal battles, other DVD rental kiosks are moving full steam ahead into the market. NCR, which now has about 500 Blockbuster Express machines in the market, plans to add an additional 2,500 kiosks this year and another 10,000 in 2010, according to spokesman Jeff Dudash. Dudash said NCR is testing with some drug chains, but would not elaborate.
Redbox is expanding its offerings with a test of video game rentals in two markets. The company is offering games for PlayStation 2 and 3, Xbox 360, Nintendo DS and Wii at Reno, Nev., and Wilmington, N.C., locations. Video games included in the test range vary in rating from children to mature and rent for $2 a night with an option to own the game after 25 nights.
NCR’s E-Play video game kiosks have been in test marketed in some Walmart locations since May. The rental kiosks offer video games for $1 a night and allow users to turn in their old Wii, Xbox and Playstation games for credit on their credit cards.
Handler said that video game rentals were “worth the trial,” but felt that the game and movie markets were very different.