Little-Known Redbox Proves the Power of In-Between Technology
If you were a Hollywood casting agent and the squat, garishly decorated Redbox DVD kiosk came in to audition for a role as the newest disruptive force in the entertainment industry, you'd send the poor fellow home. This sorry contraption doesn't run peer-to-peer software; it doesn't do Blu-ray; it won't stream anything straight to your house. It's a vending machine in a supermarket -- as old school as you can get without actually involving vacuum tubes.
Yet despite Redbox's antiquarian image, the kiosks are a sensation. Redbox -- founded in 2002 as a division of McDonald's and purchased by Coinstar this year -- runs 15,000 machines in stores across the country and plans to have about 20,000 in place by the end of the year. Reed Hastings, founder of Netflix, the innovative darling of the movie-rental business, has called Redbox one of his most challenging rivals. "It's really scary," Hastings told The Hollywood Reporter in March.
Redbox is convenient and it's cheap, but the company's fortunes also rest on a more sophisticated calculation about the marketplace. Ask any entertainment bigwig where the movie-rental business is going and you'll hear one thing: digital streaming. Amazon, Apple, Netflix, the cable companies, and many startups are gearing up to send every movie to your home on demand. But Hollywood's byzantine licensing structure precludes that from happening anytime soon. Redbox has positioned itself as the perfect in-between technology -- the next best thing to on demand. It's winning by being in more places than Blockbuster and faster than Netflix.
"Two-thirds of all films for rental are selected between 4 and 9 in the evening," says Mitch Lowe, Redbox's president. The other thing people look for during those hours: dinner. Redbox brings these twin impulses together, typically at your supermarket. Its siren song is emblazoned in large type across the front: $1 dvd rentals. Customers pay a buck per movie per night, a price low enough to encourage people to take risks on films they're not sure about, or to keep a movie an extra night. "It expands movie consumption in the same way Netflix's all-you-can-eat program does," Lowe says. "Almost all the time, half of new releases are in consumers' homes." As a result, a new Redbox kiosk becomes cash-flow positive within four to six months.
What's surprising, though, is how much wizardry goes into making Redbox work. Each machine is connected to the Internet via DSL or a 3G cellular modem. This lets customers browse and reserve movies at their local Redbox through the Web, and return movies they rent from one Redbox to any other. Each machine packs a sophisticated inventory-management system that determines how many copies of different new titles to order based on past performance of similar movies at that location. The kiosks send their inventory orders up to the mother ship every week, and Redbox's technicians fan out to each kiosk to stock it with new DVDs. "That's the most interesting part -- where technology meets old-fashioned field distribution," Lowe says.
Redbox's success is instructive. In industries where shifts in technology dictate market conditions, why plan for the next big thing when you can make money with the little steps along the way? By the time GM launches its plug-in Volt, Toyota will have been selling the gasoline-based Prius for a decade. Sure, it's unlikely Redbox will survive the transition to streaming; its chief assets -- all those kiosks -- will suddenly become a liability. Until then, it'll take what it can get.
Farhad Manjoo covers technology for Slate and is the author of True Enough: Learning to Live in a Post-Fact Society.
Article location:http://www.fastcompany.com/magazine/137/tech-edge-box-tops.html
It is not only Redbox that is having a go at the kiosk marketplace, but now with NCR's acquisition of The New Release they have become the second largest player as they work together with Blockbuster to roll out the Blockbuster Express kiosks.
They are starting to pop up all over at convenience stores, grocery stores, and rumor has it that a fast food chain is looking at how they can bring them to their thousands of locations.
NCR has plans to have 3,000 kiosks out by the end of this year and 10,000 by the end of 2010. That will bring the total kiosks in the marketplace to nearly 40,000 between the different players.
NCR is also working with Blockbuster and MOD Systems on how to do downloadable content through those kiosks. As much as we hear streaming media through Apple, Amazon, and Netflix, still nearly half of the US population does not have Broadband. And of those that DO have broadband, many have their service with one of the companies that is limiting how much you can download per month. The cable companies are not wanting to provide unlimited bandwidth which would allow these streaming companies to compete with their own video on demand services.
In addition, there are new services on the horizon. Both in Video Games and in Blu-ray. As Blu-ray discs gain in popularity that means another market for a physical media that cannot yet be matched by the streaming players. And now with E-Play (also partially owned by NCR) entering the market there is the possibility of not only renting and purchasing video games at a kiosk but trading them back in for credit!
So there is still a place for the kiosks to play in the market. For more info on the kiosk industry and where this is going, check out my blog at http://insideblockbusterexpress.com.
Steve
Posted by: Steve | July 07, 2009 at 08:22 AM