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Redbox, Netflix and the Death of Video Rental Stores

Posted on June 1st, 2010 by John Reeder
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Last night I watched the movie “Crazy Heart”, which we rented from a Redbox at the local grocery store.  I won’t go overboard and call Redbox the perfect movie rental experience, but it is I think a nice step forward and underlines the inefficiency of the traditional movie rental store.  Let’s start with some simple pro/cons:

  1. Redbox takes up very little space (or real estate).  It’s efficient in that regard.
  2. The rentals are $1/night, which strikes me as just about right for something that is contained on such a low cost media format like DVD.
  3. Redbox had all of the new releases and very few older titles.  Having the new releases allows it to cover the gap of the Netflix experience, which is that sometimes you want to watch a movie on short notice and Netflix requires you to plan in advance.
  4. There are no late fees.  Redbox just keeps charging me $1/night until I return the movie.
  5. Now for the cons.  In my local grocery store there was just one Redbox, which resulted in a line being created, and some amount of anxiety as you go through the titles looking for what you want.  You don’t want to delay anybody else, so you feel the need to hurry.  I’m sure this could be solved by adding a second Redbox.
  6. Because the titles are fairly limited, you really only want to use Redbox when you are interested in a new release.  Perhaps a way to address this would be if Redbox were wired to the internet and could download and burn titles in 20 minutes or something.  You could order the DVD when you get to the store, complete your shopping and then come back for it when you are done.  Another more intermediate solution is that the Redbox could always contain the IMDB Top 100.

It seems an obvious match if Netflix were to acquire Redbox.  I think it would protect Netflix’s position in the video rental business.  Streaming isn’t going to be perfect for some time, so Netflix needs to cover the intermediate space between consumers that want to watch a movie right now, and the Netflix service.

The combination of Netflix and Redbox (I am a Netflix subscriber, but had no problem paying $1 for a movie that I could watch last night) illustrates that sometimes to kill an industry leader (Blockbuster) there is no single magic bullet.  Sometimes the combination of two innovations will kill an industry leader.  I know Blockbuster has a program that is similar to Netflix and has the added advantage of being able to return DVDs in stores, but it looks like the video rental giant is on its last legs despite that change to their business.

The rise of Netflix, and even the existence of Redbox, provide support to my point made last week that industry leaders can be displaced against almost impossible odds because the industry leaders are usually so focused on maintaining existing profit centers and business practices.  When Netflix was started, doesn’t it seem likely that somebody said “Wait, what if before we are even up and running, Blockbuster starts a similar service and crushes us with their existing advantages?”  It seems a logical objection, and yet Blockbuster ignored the threat until the game was over.  Even the existence of Redbox is problematic for people who would argue that it’s difficult to impossible to dethrone an industry leader.  Shouldn’t Blockbuster have focused on a similar concept as soon as DVDs, and their small physical footprint, replaced VCR tapes?  Wouldn’t it have been the ultimate innovation to allow them to grow their margins?  If they had done it, we would probably be renting from Blockbuster machines in the grocery store for $3/night, because there would be no reason for Blockbuster to rent the movies for less.  But they didn’t do anything.  It’s almost shocking to think about.

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June 1st, 2010 | Category: Uncategorized

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