[opendtv] Movie Studios See a Threat in Growth of Redbox
- From: Craig Birkmaier <craig@xxxxxxxxx>
- To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
- Date: Mon, 7 Sep 2009 09:59:01 -0400
So Bert.
The following article seems to suggest tat you are right, that things
tend to evolve toward free.
But in reality, what they really trend toward - at least if there are
no artificial constraints on the market - is toward market-based
pricing.
Could it be that Internet driven market pressures will bring the cost
of entertainment down to levels where there is little buyer
resistance?
Consumers now seem happy to use their credit cards for very small
transactions as is the case with Red Box.
Regards
Craig
http://www.nytimes.com/2009/09/07/business/media/07redbox.html?th&emc=th
Movie Studios See a Threat in Growth of Redbox
Peter Wynn Thompson for The New York Times
A Redbox kiosk at a Walgreens in Villa Park, Ill. The company and its
rivals have 19 percent of the DVD rental maket
By BROOKS BARNES
Published: September 6, 2009
LOS ANGELES - In 1982, just as the VHS tape was taking off, a "Star
Wars" buff named Mitch Lowe had a radical idea. What about building a
vending machine that could rent movies? He called his invention Video
Droid.
It failed. People were not yet comfortable using credit cards for
casual transactions, the tapes broke easily and the technology
involved with manipulating their bulk proved too expensive.
But Mr. Lowe did not give up, and his moment seems to have finally come.
Mr. Lowe, 56, is now the president of Redbox, a fast-growing company
in Illinois that rents movies for $1 a day via kiosks. By December,
there will be 22,000 Redbox machines in spots like supermarkets,
Wal-Mart Stores and fast-food restaurants.
Redbox's growth - it started with 12 kiosks in 2004 and now processes
about 80 transactions a second on Friday nights - has Hollywood's
blood boiling. Furious about a potential cannibalization of DVD sales
and a broader price devaluation of their product, three studios (20th
Century Fox, Warner Brothers and Universal) are refusing to sell DVDs
to Redbox until at least 28 days after they arrive in stores.
Redbox is suing them on antitrust grounds. Leery of waging their own
battles, two other studios, Sony Pictures and Paramount Pictures,
have signed distribution deals with the vending company. Walt Disney
permits third-party distributors to sell to Redbox but has so far
shunned a direct relationship.
Redbox and its vending rivals now have 19 percent of the rental
market, compared with 36 percent for rent-by-mail services (Netflix)
and 45 percent for traditional stores, according to the NPD Group, a
market research company. NPD estimates that vending will grow to a 30
percent share by the end of next year, at the expense of traditional
stores.
Studios, aware that consumers are unlikely to pity their plight and
muzzled by the lawsuits, are keeping quiet. Fox, Universal, Warner
and Disney each declined to comment for this article. But Hollywood's
powerful public relations machinery is in motion behind the scenes to
connect the news media with a group that is equally threatened by
Redbox but much more relatable: mom and pop rental store owners.
"These machines are to the video industry what the Internet was to
the music business - disaster," said Ted Engen, president of the
Video Buyers Group, a trade organization for 1,700 local rental
stores.
Mr. Engen is enlisting lawmakers to attack Redbox for renting R-rated
movies to underage viewers - the machines simply ask customers to
confirm that they are 18 or older by pressing a button - and trying
to rally the Screen Actors Guild and other unions.
"It's going to kill the industry," said Gary Cook, business manager
for UA Local 78, which represents studio plumbers.
Mr. Lowe, meanwhile, is portraying the studios as greedy giants
scheming to trample the little guy. "Don't let a few movie studios
prevent you from seeing the latest DVDs for an affordable price,"
reads a headline on a new Redbox Web site, savelowcostdvds.com.
Redbox, formerly owned by McDonald's and now part of Coinstar, is
only the biggest of a host of DVD vending companies. DVDPlay, whose
kiosks are also red, has been aggressive in California, while
MovieCube is big in Canada.
Blockbuster is scrambling to introduce its own rental kiosks. There
are now about 500 Blockbuster Express machines, and plans call for
2,500 more by the end of the year; the company expects to open 7,000
in 2010, a spokesman said.
The kiosk boom is fed by several consumer and business currents, all
related to the recession.
For starters, the dismal economy has made people think twice about
buying DVDs, especially as the likes of Redbox have made renting
easier. Consumers are also tiring of the clutter: The average
American household with a DVD player now has a library of 70 DVDs,
according to Adams Media Research.
Over all, DVD sales are down 13.5 percent for the first half of 2009
compared to the first half of 2008, according to the Digital
Entertainment Group, a trade organization. Studios say some new
titles are selling 25 percent fewer copies than expected. Rental
revenue is up about 8 percent over the same period, according to the
group.
Retailers, struggling to keep people shopping, have realized that
having a DVD kiosk in a store creates foot traffic, making it easier
for companies like Redbox to sign wide-ranging installation
agreements. Some partners, like Walgreens, have offered discounts
that essentially make rentals free.
Redbox is also getting a hand because of Hollywood's troubles.
Analysts say Sony and Paramount signed agreements with the company in
part because their home entertainment units are under pressure to
meet financial targets, set before the DVD decline.
Sony's five-year deal is worth about $460 million in DVD sales to
Redbox. Paramount's deal starts with a four-month test; if the studio
decides Redbox represents a net gain to its home entertainment
business, it can extend its relationship for five years and a
guaranteed $575 million.
Paramount's deal involves revenue-sharing, a rarity for Redbox. The
kiosk operator primarily follows the mom and pop model: it seeks to
buy discs wholesale and makes a profit with repeat rentals.
(Revenue-sharing deals typically allow a rental store to buy discs
for half the wholesale cost or less.) Redbox can price rentals at $1
and still make money because its machines eliminate so much overhead.
The $1 price is not the main issue for the studios, although they do
not like that, either; it is the timing. New DVDs sell for about $25.
Video-on-demand services price them at about $5. Multiday rentals of
new titles cost $4.99 at Blockbuster.
Now there is a $1 option at the same time. That could put downward
pressure on the industry's price structure.
"Anyone whose business involves selling movies should be enormously
concerned," said Richard Greenfield, an analyst at Pali Research.
Analysts also see a threat to studios in Redbox's practice of selling
about half of its DVDs into the used market (after renting them about
15 times at an average of $2 a transaction). By signing deals with
Redbox, Paramount and Sony got the kiosk operator to agree to destroy
their discs rather than resell them.
"Our position is that this is a strong consumer trend, and we figured
out a way to minimize the negative aspects and maximize the positive
ones," said David Bishop, president of Sony Pictures Home
Entertainment.
Rob Moore, vice chairman of Paramount Pictures, said, "This trial
gives us access to information that will allow us to make an informed
decision about Redbox's impact on our home entertainment business."
Mr. Lowe dismissed worries about the cannibalization of sales. He
cited internal research indicating that 20 percent of Redbox's volume
is additive - people who did not previously buy or rent DVDs - and
that partners like Wal-Mart have had only a 1 percent decline in
sales after Redbox machines have been installed at their entrances.
The kiosks hold about 500 DVDs and focus on new mainstream releases.
Customers follow a series of touch-screen prompts to use the kiosks,
which vend from slots on the side. Once a selection is made, the
customer swipes a credit card through the reader. The card is charged
a dollar (and tax) for each DVD rented; the charges for additional
days, if any, are added when discs are returned. The charge for lost
DVDs is $25.
"If you make renting affordable and fun, people are going to watch a
whole lot more movies than they did before," Mr. Lowe said.
----------------------------------------------------------------------
You can UNSUBSCRIBE from the OpenDTV list in two ways:
- Using the UNSUBSCRIBE command in your user configuration settings at FreeLists.org
- By sending a message to: opendtv-request@xxxxxxxxxxxxx with the word
unsubscribe in the subject line.
Other related posts:
