When the Price Is Right, the Future Can Wait
By RANDALL STROSS
Published: July 11, 2009
RENT any movie. Anytime. Without leaving the couch.
Peter Wynn Thompson for The New York Times
Mitch Lowe, the president of Redbox, in Oakbrook Terrace, Ill. He says the typical user of its $1-a-night movie rental service “doesn’t want to wade through titles they won’t be interested in.”
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It’s not here yet, but we know the time is coming when sedentary consumers will be able to have any title they desire, delivered digitally. This makes the video-rental kiosks being installed by Redbox in stores nationwide a surprise, akin to a general store setting up hitching posts after the first automobiles were on the streets.
Redbox brings movies close to a customer’s house, but not to the doorstep. Why would customers ferry its discs back and forth, from store to house back to store, when more convenient movie-rental options are already available inside their own homes?
For the right price, it turns out, customers will accept the extra steps. Redbox has the right price: $1 a night for any title. Keep it as many nights as you like. (After 25 nights, it’s yours, paid in full.)
As for the inconvenience, Redbox tries to minimize it by placing its kiosks near the door of grocery stores, drugstores or other places that customers often visit for other purchases. A disc rented from one location can be returned to any other.
Redbox originated within McDonald’s, which was looking for new ways to increase traffic to its restaurants and first tested the concept in 2004. McDonald’s later spun it off and sold it to Coinstar, the company that runs coin-counting kiosks. Redbox hosts now include McDonald’s — at 3,000 of its 13,000 restaurants in the United States — and some locations of Wal-Mart, Walgreens, Albertsons and Circle-K.
In 2005, Redboxes were in 600 locations and rented 24,000 movies a week. Today, they’re in more than 15,600 locations, renting 7.5 million movies weekly, Redbox says, not far below the 10 million-plus weekly rentals claimed by Netflix.
Netflix offers more than 100,000 unique titles. Each Redbox kiosk has slots for 600 discs, but the average number of titles is just 200, accommodating multiple copies of the most popular.
Mitch Lowe, the president of Redbox, said his company’s service drew predominantly from lower-income households with large families — the opposite of the profile of the typical customer at Netflix, where Mr. Lowe worked for six years before joining Redbox in 2003. He said the typical Redbox customer “doesn’t want to wade through titles they won’t be interested in.”
At Redbox, “Paul Blart: Mall Cop,” featuring physical comedy and no end of fat jokes, is its record-holding rental title. “Probably not what you’d find at Netflix,” Mr. Lowe said. (He was right: “Crash” is Netflix’s top rental; “Paul Blart” doesn’t appear anywhere in its Top 100.)
Tom Adams, president of Adams Media Research, a consulting company based in Monterey, Calif., views the very process of going to a kiosk and returning home triumphantly with popular videos as a durable source of entertainment itself.
“We’re only 10,000 years out of the caves,” he said. “Humans like to go out and get stuff and bring it home — we’re just wired that way.”
He may well be right. But many Americans seem to have developed an aversion to the video store as a self-contained entertainment destination. Mr. Adams predicts that in 2013, spending at video stores in the United States will be $3.8 billion, down 30 percent from 2008. (Video store sales peaked in 2001, at $10.3 billion.)
One of the beneficiaries, he says, will be subscription services like Netflix, whose revenue he projects will grow by 42 percent, to $3.1 billion. But kiosk revenue will increase the most, more than 200 percent, to $1.5 billion, Mr. Adams says.
In the mid-1980s, before Blockbuster and the chains took over, videocassettes were rented almost everywhere one turned, including many of the grocery stores and convenience stores that Redbox is invading. Vending machines were used in many places then, too. Mr. Adams said that there were 100,000 rental outlets in the United States at the peak, but that poor inventory management proved to be the undoing of most.
Redbox, he said, faces the same challenge of getting the mix of titles just right. “Can they stock enough copies of the hits on Friday and Saturday night and still make money?” he asked.
Mr. Lowe, of Redbox, says his company aims to keep the kiosk inventory fresh; 40 percent of rentals are supposed to come from titles released within the previous two weeks. Customers can use the Redbox Web site to check the inventory of a particular machine and reserve a copy of any title. But the physical kiosk has an inherent limitation that the Web can’t address: only one customer can be served at a time.
Over the last two weeks, I’ve kept a close eye on the inventory of the two kiosks closest to my house. Whether looking for titles that had been released within the past two weeks or others that were in high demand nationally, I found that few were in stock, even on weekday nights.
IF Redbox is concerned about its long-term prospects in a future where our online video options will get better and better, it isn’t letting on. Paul Davis, Coinstar’s chief executive, said in a quarterly earnings call in May that bandwidth limitations would deter most customers from bothering to download even a low-resolution movie. He also placed faith in Redbox’s $1 rental price as the company’s primary bulwark, which he says “will be very difficult for any digital distribution player to approach.”
Redbox’s low price, however, is less a reflection of a permanently superior distribution technology than of Hollywood’s reluctance to fully embrace alternatives to discs, like video-on-demand. But until they do, hitching-post companies are free to enjoy some good years.
Randall Stross is an author based in Silicon Valley and a professor of business at San Jose State University. E-mail: stross@nytimes.com.
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