What is Redbox?
Redbox is a company that specializes in the provision of rental DVDs, video games, and Blue-ray discs. The company sells its products through automated rental kiosks. In 2010, the company was ranked as fastest growing rental retailer in the United States by Business Week (“ Redbox Plots Web Strategy in Challenge to Netflix” n.p.). Redbox was started by McDonald’s in 2002 and by the time it entered the market 2 years later, the company had opened over 100 self-vending kiosks. In 2008, Redbox was purchased by Coinstar and since then, the outfit has recorded tremendous growth. Today, the company operates over 26,000 Redbox kiosks across the country (Christopherson n.p.). These kiosks are conveniently located in convenience stores, pharmacists, gas stations, and grocery stores, among other popular national landmarks. Each of the self-service vending kiosks has an interactive touch screen that enables prospective consumers to browse through over 600 DVDs. A customer can then rent a DVD or movie of their choice using a debit card or a credit card. Redbox rents outs DVDs at a rate of one dollar a night. Consumers can also reserve DVDs using an iPhone app or via the Redbox website. They then get to pick them at a convinient Redbox kiosk. Redbox stocks its vending machines with the latest movie releases every Tuesday. However, Friday is the busiest day for Redbox as the company normally processes over 80 transactions per second (Mortimer 1321). So far, Redbox has rented out over 1 billion movies through its Redbox kiosks, and there is no sign of the company slowing down in terms of its growth prospects.
The U.S movie/DVD market and its trends
As of 2010, the U.S game, video rental and DVD market was estimated to be worth $ 7.724 billion (Epstein 83). However, over the last 5 years, the industry has recording decreased revenue. Analysts predict that this downward trend in revenue generated is likely to be felt in the next few years. Part of the reason for the decreased revenue is that at the moment, the game, video rental and DVD market is at the decline stage. Competition has also become very stiff as more brick-and-mortar companies have reduced their prices, leading to declined revenues. Due to competition, companies in the industry have also embraced novel selling strategies in a bid to retain their market share. For example, the emergence of Netflix has contributed to price reduction (Lang, Switzer and Swartz 269).
Cable and satellite companies have also entered the market and are now offering video streaming services. This has dealt a heavy blow to the game, video rental and DVD industry. Consequently, the entire industry has experienced a drop in prices as companies try to beat competition. Although most of the industry players have realized an increase in units sold due to reduced prices, on the other hand, they continue to generate low revenues.
The steady growth of the industry between 2000 and 2005 has been associated with the entry of a new product in the market. Hence, demand for the product was high, and prices low.
Between 2005 and 2006, a leveling off of DVD rental shows occurred, and this was a sign that the product has entered its maturity stage (Mui n.p.). The entry of new competitors and the recession of 2008 resulted in declined revenues. On the other hand, the DVD rental kiosks entered their growth stage between 207 and 2012. More competitors entered the market as revenue increased.
Convenient locations, new technology and affordability are some of the factors that make automated rental kiosks a crucial element in as far as the future of the game, DVD, and video rental market is concerned. The DVD rental industry is characterized by stiff competition, mainly because this is a cutting-edge industry (Lang et al. 271). Other factors that have affected the industry include the economic environment, legal and regulatory issues, and technical developments. Increased unemployment due to the recent recession has resulted in reduced consumer confidence. Consequently, consumer spending has declined. Part of the reason why Redbox has survived the harsh economic environment is by positioning itself in the DVD rental market as an affordable entertainment option.
From a legal and regulatory context, it is hard to identify and control the sale of DVDs to minors at the self-service kiosks. The Entertainment Merchants Association forbids selling of “R”-rated movies to individuals below 17 years of age. From a technological point of view, on-demand rental services and digital downloading has created both opportunities and problems in the DVD, movie and video rental industry (Mortimer 1335). The introduction of video-streaming services by Netflix and Amazon has resulted in increased consumer convenience. Consumers can now enjoy unlimited access to video-streaming rentals by paying a monthly subscription fee. Nevertheless, there are huge growth opportunities in video streaming and self-service whereby consumers are able to download and transfer movies digitally onto memory sticks and SD cards.
More than half of the Redbox consumers are female (52%). NPD demographics further indicate that about 51% of Redbox’s consumers come from household of 4 persons. There are two key demographics that define the movie rental market. First, we have the young adults of 18-24 years, as well as those of 25-34 years. These are either graduates or college students from the Middle Class. They have an annual income of $ 50,000-100,000, and live in the city (Dignan n.p.). They are mainly motivated by a sense of social recognition and accomplishment. They are curious about trying new things, getting socially involved, and being efficient. However, this target group is a light user, and their rental frequency is low to medium. Moreover, they mainly use movie or DVD rentals during dates, at social gatherings, and for leisure.
The other target group is between 35 and 44 years. They earn between $ 30,000 and $ 60,000. Their motivation is family security and a comfortable life. They are regular users and their rental frequency is medium. They use the product for leisure, and spending quality time with their families.
Redbox competes in a highly competitive and dynamic industry. Some of the strategies that differentiates Redbox from the rest of the competition include affordability and accessibility to movie and DVD rentals. In comparison with its nearest competitor, Netflix and Blockbuster, Redbox offers its consumers more physical locations, increased access, as well as the lowest entry price in the market (Taylor n.p.).The key direct competitors of Redbox in the DVD/movie industry are Netflix and Blockbuster. The three companies also have the largest market share at 24.2 %, 4.9% and 13.9%, respectively (Mui n.p.).
Redbox’s self-service kiosks are open 24/7. In addition, the company allows customers to return borrowed DVDs at any Redbox self-service kiosk that is convenient to them. The company’s key strengthens include a large number of conveniently located rental kiosks, strong following and active presence in social media sites like twitter and Facebook. It also has a strong presence in website marketing. On the other hand, the company does not have a wide variety of DVDs. This, along with the lack of an established customer base are the main weaknesses of the company.
Netflix offers customers in-home movie streaming services. This service is confined to internet connectivity and as such, it lacks the mobility of a DVD. In addition, a number of customers have been complaining about some noticeable flaws in video streaming, and this has made the service less desirable (Robson n.p.). Nevertheless, the company promotes a loyal customer base with its monthly subscription fee.
Blockbuster Express shares a lot of similarities with Redbox. For example, it offers video rental services at $ 1 a night, 24/7. The company inherited brand loyalty from Blockbuster, its parent company. This has been a source of its strength. However, Blockbuster Express has fewer kiosks locations compared with Redbox, hence less availability and access to its products.
Redbox has positioned itself as a key player in the U.S movie/DVD market, as evidenced by the company’s strong market share. However, competition from rivals like Netflix and Blockbuster express has seen the company’s record reduced revenue, even as its sales increase. The general trend in the industry in recent years has been mainly towards video game rental and online streaming, but away from Blue-Ray. The company should therefore embrace innovation and technology in order to stay relevant in an otherwise dynamic industry.
Christopherson, Susan. “Hollywood in decline? US film and television producers beyond the era of fiscal crisis.” Oxford Journals, 6.1(2013): 141-157. Print.
Dignan, Larry. Redbox rocks: Revenue soars; Sees big growth ahead. 2010. Web.
Epstein, Edward. The Hollywood Economist. New York: E.J.E. Publications, Ltd. Inc, 2010. Print.
Lang, David, David, Switzer and Brandon, Swartz. “Dvd sales and the r-rating puzzle.” Journal of Cultural Economics, 35(2011):267–286. Print.
Mortimer, Julie. “Price discrimination, copyright law, and technological innovation: Evidence from the introduction of dvds.” Quarterly Journal of Economics, 122. 3(2007):1307–1350. Print.
Mui, Ylan. Redbox Finds Its Niche. Web. 2008.
Redbox Plots Web Strategy in Challenge to Netflix. 2010. Web.
Robson, Wayde. Redbox threatens Netflix in video-rental III: rise of the vending machine. 2009. Web.
Taylor, Dave. The next evolutionary step in DVD rentals: Redbox. 2005. Web.