And following agreements with Albertsons supermarkets in June and Kroger supermarkets earlier this month, Redboxwhich [image-nocss] generated just $389 million in revenue last year and currently has 15,000 kiosks nationwideexpects to end this year with 22,000 kiosks in all 48 mainland states, up 61% from the end of 2008. Company parent Coinstar Inc., Bellevue, Wash., said that revenue from the DVD rental operation could double to as much as $780 million.
It placed its kiosks in all 248 Albertsons stores; the company said Redbox kiosks are currently available at more than 200 Kroger locations, and more than 2,600 Kroger-operated supermarkets and convenience stores will feature the kiosks within the next year. (Click here for previous CSP Daily News coverage.)
Meanwhile, Oak Brook Terrace, Ill.-based Redbox filed suit in Delaware Federal Court against 20th Century Fox on Tuesday to protect consumers' rights to access new release DVDs. Redbox filed the action in response to new distribution terms proposed by the studio that would prohibit Redbox from providing consumers access to 20th Century Fox DVDs until at least 30 days after public release.
"Redbox's cornerstone principles include providing customers with a convenient way to rent new release DVDs at an affordable price," said Mitch Lowe, president of Redbox. "At the expense of consumers, 20th Century Fox is attempting to prohibit timely consumer access to its new release DVDs at Redbox retail locations nationwide. Despite this attempt, Redbox will continue to provide our consumers access to all major new releases including 20th Century Fox titles at our more than 15,000 redbox DVD rental locations."
The lawsuit follows an announcement by Redbox that the company has signed a multi-year distribution agreement with Lionsgate expanding the depth and breadth of Lionsgate titles available at all Redbox DVD rental locations nationwide including new release titles. Redbox signed a similar distribution agreement with Sony Pictures Home Entertainment in July, expanding the quantity of SPHE new release, direct-to-video and catalog titles available at all Redbox locations. The agreements are a win for the studios, Redbox and consumers providing consumers timely, convenient and affordable access to new release DVDs, Redbox said.
"We calculate that 150 million people every week walk within 10 feet of one of our locations," Lowe told USA Today. "The way we'll grow is by focusing on the customer experience. That's how we've come out of nowhere."
Blockbuster says it will have nearly 3,000 kiosks renting and selling discs and games by the end of this year, growing to 10,000 in late 2010. "One of our price points will be 99 cents," Blockbuster CEO James Keyes, former top executive at 7-Eleven, told the newspaper. "But we will have a broad range of other offerings."
For now, Redbox is sticking with DVDs while it tests interest in $1-a-day Blu-ray discs, said the report.
Its machines stock as many as 700 discs, usually about 200 different titles. Consumers use a credit or debit card to rent DVDsno membership requiredand can return them to any Redbox kiosk. The machines read bar codes on each disc to register what's gone out and come back.
Renters hold on to discs as long as they want; after 25 days (and a total charge of $25) they can keep the DVD. About 10% do so.
The machines constantly communicate with Redbox, primarily via cellphone transmissions. People can go to the company's website to see what's in stock at different kiosks, and reserve a movie at a particular machine.
But kiosks are taking off mostly because credit-card companies have improved their ability to securely handle massive numbers of transactions, according to the report.
"We're among the top 10 credit-card processors in the country," Lowe said. "On an average Friday and Saturday, in the evening, we process 70 to 80 transactions per second, which is around where Amazon has stated its peak Christmastime sales volume was."
Redbox said that it pays about $18 for a DVD and rents it about 15 times at an average of $2 per transaction. The company sells half of the used DVDs back to wholesalers for as much as $4 per disc, and sells about 3% directly to consumers for about $7. It destroys most of the rest.
That low-price model suits Redbox just fine, but not so much the Hollywood studios, which count on home video rentals and sales for about half of their revenue, the report said.
If consumers figure it's only worth $1 to see a movie at homeinstead of the $4.50 or so charged by rental chains and video on demandthen it could "cripple the economics of today's movie business," Pali Research analyst Richard Greenfield said in a recent note cited by USA Today.
Universal was first to fight back: Last year it insisted that Redbox not rent the studio's new DVDs until 45 days after they're available elsewhere. When Redbox refused, Universal told the kiosk firm's top wholesalers to cut off its supply of the studio's DVDs. Redbox asked the U.S. District Court in Delaware to find Universal guilty of violating antitrust and copyright laws. Redbox still offers Universal flicks, often after buying its DVDs at retail.
Universal told the court that the case simply involves Redbox's desire to get Universal's DVDs "on terms that are at odds with the terms on which Universal wants to sell them."
Fox last week began asking wholesalers to wait 30 days before selling its new releases to Redbox.
Hollywood is divided, though, said the report: Disney is supplying new releases. Last month Sony agreed to do the sameon DVD, not Blu-rayfor five years; Redbox will destroy used discs when it's through renting. "It's difficult to fight against a consumer trend like this," Sony Pictures Home Entertainment president David Bishop told the paper.
"Our [DVD] product rented at a dollar is grossly undervalued," News Corp. president Chase Carey, whose company owns the Fox studio, told analysts last week, the paper said. "It's a real issue. And we're actively determining how to deal with it."
Blockbuster said it wouldn't mind if stores got DVDs before they hit the kiosks. That way, new discs bought for the stores would "move from the shelves to the vending channel, and then we'd have an advantage with significantly [lower] cost of goods," Keyes said.
But Redbox said that its kiosks with their $1-a-day discs have changed the entire video-rental game. "This has put the power of the decision in the customer's hands." Lowe told the paper.
Click here for additional Redbox coverage.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.