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 producers, 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.

But some 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 Bros. 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.

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.