Redbox: Marketing Within the Box

There are basically six technology-driven threats to the traditional rental model: (1) Cable companies offering Video on Demand (VOD), (2) online movie downloads, (3) online movie rentals, (4) disposable DVDs, (5) illegal movie downloads and DVD copying, and (6) Digital (or Personal) video recorders (DVR). (Jackson) One could also consider traditional pay-per-view (PPV) as and additional substitute. Only one of these seven, online movie rentals has proven to be a major competitive substitute for traditional movie rentals. All other areas, except traditional pay-per-view are expanding rapidly, but some face significant challenges.

The movie rental industry is a living industry; there are constant changes with advances in technology, rights management, and the slow, but steady, move away from physical Media. Companies such as Netflix, Hulu, RedBox, and Blockbuster are being forced to look at new business models and try to keep up with these changes.

Blockbuster implemented a new strategy for customers to access their rentals in “five channels of distribution: in-store, by mail, through vending machines and kiosks, online, and at home (direct to the TV)” (DATAMONITOR, 2009). However, this strategy was a reactive approach to the problem produced ten years behind schedule. Wooldridge et al., (2007) stated that Blockbuster should select and adapt their strategy to respond to the fast changing market and maintain a competitive position. This was an obvious failure for Blockbuster. The changes in the market produced a decline in profit at a faster pace than the strategies that Blockbuster implemented to combat these losses.

While Redbox is one of our biggest competitors for viewers, it seems that the DVD rental market is on a downward trend. Therefore it is probably best to focus on companies that are intent on delivering video streaming. One recent player in the market is Sling TV, which is a subsidiary of Direct TV, and they have an offering of content that covers an area of entertainment that we have not been able to crack into (Katzmaier, 2015). They stream live cable programs such as AMC, TNT, TBS, Disney, HGTV, Cartoon Network, and ESPN to users for twenty dollars a month. While they are still subject to commercials and do not offer the ability to fast forward on certain channels, their product offering is one that differs enough from Netflix to cause

Redbox has not segmented its market by any demographic variable. With its kiosk located at routine place, it wishes to target the whole market, otherwise known as mass marketing.

Blockbuster used to have so much power in the movie rental industry until Redbox and Netflix have come to the market. One of Porter’s five forces

Blockbuster Entertainment, Inc. was once a highly successful and profitable brick and mortar home movie and video game rental store. At its peak in 2004, Blockbuster had up to 60,000 employees and more than 9,000 stores. The idea behind Netflix came from an unsatisfied, embarrassed customer of Blockbuster, Mr. Reed Hastings, now CEO of Netflix, paid a $40 late fee because he returned the movie Apollo 13 six weeks later (Zarafshar, 2013). He began to contemplate ingeniously about a notion to change the movie-leasing pattern into a more pioneering industry. In 1997 Netflix was started as a DVD rental-by-mail business without subscriptions. In 1999, taking a stride additional in the direction of evolving the industry, Hastings began the subscription-based business mode based on renting DVDs by mail with plans reliant on the quantity of titles taken at a time. Netflix put forward 120,000 titles for limitless monthly DVD rental with free shipping no late and per title fees. Since that time Netflix has become one of the most popular subscription services in the world, and is now valued at over $28 billion and steadily increasing. What factors contributed to the success and failure of these two companies?

The main suppliers for the Redbox and other movie rental business are the movie production houses which own the copyrights of the movies produced by them. Three major studio houses 20th Century Fox, Warner Brox and Universal separately refused to sell DVDs to Redbox atleast 28 days after their arrival in stores. Other major studio houses, Sony Pictures, Paramount Pictures and Lionsgate signed distribution deals with Redbox. Since Redbox’s business model largely relies on new releases, “windowing” of new releases by the three studios may make Redbox’s business model unviable. Redbox responded by filing lawsuits with three claims against these companies - copyright misuse, tortuous interference and antitrust claims. In August 2009, a federal judge rejected the first 2 claims but allowed the antitrust claim to continue. Earlier this year, Redbox dismissed the lawsuits and reached and agreement

1. Netflix’s original marketing strategy offered several flat-rate monthly subscription options; in which, members could stream movies and shows via the Internet or have disks sent to their homes in a pre-paid and pre-addressed envelope. Free from the despair of due dates and late fees, members could keep, up to, eight movies at a time. Upon the return of a disk, Netflix would automatically mail out the next movie from the customer’s video queue. Members were able to change and update their queues as frequently as they liked. The sheer innovation of Netflix’s strategy encouraged several competitors to enter the market to compete directly,

Currently the competitive forces in the movie rental marketplace are not very strong. There are not very many players seeking to gain share in the market. The only competitors that come to mind when thinking of the movie rental marketplace are Netflix, Blockbuster and Red box. The evolution of technology has allowed many people to stream movies from online at no charge, for most and without any required subscription. Places like Blockbuster and Movie Stop are not as vivid as they have been in previous years due to the market shifting

Redbox is an easy way to rent and watch DVDs, Blu-Ray Discs and Video Games via automated kiosk or electronic device based streaming video. Kiosks are located at select fast food restaurants, grocery stores and convenience stores. Each Redbox kiosk holds approximately 630 DVDs/Blu-ray Discs/Video Games. DVDs rent for $1.20 per day, Blu-ray discs at $1.50 per day

Looking at where the company is in the market place, the cinema exhibition business segment has reached maturity (Reading International, 2013). Reading International will be looking towards improving their current cinemas to achieve more growth as well as developing niche-type of cinemas in selected markets and also procuring additional properties that contain existing cinemas. The objective behind these strategies is to attract more customers. Currently, Reading International targets several key groups of consumers by running various promotions across each country; school children are targeted with the ‘Early Bird’ promotion, students are targeted with ‘Terrific Tuesday’, working professionals with ‘Friday Flicks’, couples with ‘Steer & Beer’ restaurant ‘combo’ deals, families with ‘Spit the Dummy’, elderly with senior discounts, and general movie enthusiasts can sign up for the ‘Reel Club’. It appears that these consumers have been segmented on the basis of demographic grouping. What Reading International needs to be aware of however, is that there is a whole new generation of consumers that will have an effect upon how Reding International’s customers should be grouped over the next couple of years. This generation is known as the Net-Generation (N-Gen), and should

There are many different factors in the environment that influence Redbox Automated Retail. These factors include: general business ethics, United States copyright laws, the economic recession, unemployment, increased consumer debt levels, declining consumer confidence and spending, new technological advances, natural disasters, and content acquisition and license agreements. Although the previously listed factors each hold a certain degree of importance, the most relevant factors include new technological advances, content acquisition, and license agreements. The advancement in technology, such as digital access to movies via the internet, allows customers the convenience to access films directly from their home which weakens the consumer demand for DVD’s. Furthermore, content acquisition and licensing arrangements restrict the amount of titles that are available to Redbox resulting in litigation battles with large movie studios.

One the one hand, the fertility of the industry opened the doors to corporations that sighted substantial growth potential. New entrants with big pockets such as Walmart could pose a certain threat to Netflix, by exploiting a playing card based on cost reduction. On the other hand, barriers to entry became relatively significant as established video rental retailers such as Netflix have the experience and the knowhow to market movies to people. In this industry, firms that do not have a technological advantage can’t compete. The best example is Netflix’s CineMatch program that offered personalized film recommendations based on customer’s rental patterns. This way, Netflix was able to better serve its subscribers. From a cost perspective, the movie rental industry requires high capital expenditures, and the major expenses are highly related to acquisitions of DVD library and investments in technology (exhibit 2 continued). Thus, we may say that entry is difficult in this industry as the competing firms have reputation, experience and recognizable brand names.

Netflix exhibits dominant economic characteristics in the online movie rental business. They enjoy strong market size and growth rate when compared to rivalry competition. The number of rivalries are increasing, and the market remains dominated by only a few sizeable rivalries like Blockbuster Video, Wal-Mart, Walt Disney Movies and Movielink’s Downloadable Movies. Netflix is determined to offer new and innovative technology to sustain their competitive advantage.