Redbox Rising
For the past few years the home video industry has been undergoing some traumatic changes. Although there was an almost seamless transition from the VHS to the DVD format, the shift to a high definition disc format has been stifled as a result of the format battle between HD and Blue-Ray. It’s also possible that consumers haven’t been convinced by a high-definition format will bring significant new benefits. In any case, it seems that the overall market has several challenges ahead.
Also while DVD sales grew strongly between 1999 and 2006, they have been dropped since then. During the same period DVD rentals grew at a slower rate but have plateaued around $7.5 billion during the past three years. Consumers are simply buying less discs, resulting in a greater importance for the rental segment.
This shift towards rentals may be led by the greater convenience of innovative subscription services like Netflix, and by lower priced rental options, as in the case of kiosks like Redbox that charge only $1 per rental. Since a kiosk requires a lower overhead cost, Redbox can offer rentals at $3 less than a video store. With its low price point and well placed distribution network of 18,000 kiosks, many at Wallmarts, Redbox has raised its share of the DVD rental market from 2.3% to 9% during the past year. This would be approximately half of the kiosk DVD business, based on figures from an NPD study. NPD also estimates that kiosks will grow to a 30% market share during 2010.
Unsurprisingly Redbox is seen as a threat both by Blockbuster, whose second quarter same store sales fell 18% this year, and by many production studios (although not Dreamworks) who see their DVD revenues flattening. In response Blockbuster is planning to open 10,000 kiosks over the next year and several movie studios have blocked Redbox from offering new releases for 28 days. This story is far from over since it remains to be seen how other factors like online video and VOD services will come into play but it does demonstrate that the DVD rental market while seemingly mature is far from settled.