Redbox Challenges Netflix in DVD Rental Business

Competition is heating up among the DVD rental companies as kiosks are beginning to steal market share business from mail order services.

 

Redbox has come out as the top operator of DVD-rental kiosks. The company, which is owned by CoinStar, operates more than 15,000 vending machines, which offer DVDs for $1 per day in supermarkets and discount stores. And that fact is giving Netflix, Inc. CEO Reed Hastings something to worry about.

 

While both companies are prospering during the recession, Redbox is gaining its edge on Netflix’s No. 1 spot as the U.S.'s top video rental supplier, according to The Associated Press. The company’s kiosk expansion in supermarkets and discount stores will make it one of Netflix’s top competitors by year end, the report said.

 

"By the end of the year, kiosks will likely be our No. 1 competitor," Hastings reportedly said in a recent conference call. "There are already more kiosks in America than video stores."

 

Redbox began in 2002 by McDonald’s restaurant group. Coinstar bought out McDonalds and other investors for up to $25 million for the business, the AP reported. The company’s machines carry about 700 discs with 200 titles, mostly new releases. Titles are available for $1 per night. DVD kiosks make up more than half of Coinstar's sales and profit, the AP said, and sales and profit more than doubled in the last quarter on sales of $154 million, the AP said.

 

In comparison, Netflix offers 100,000 movie titles and its cheapest plan costs $4.99 a month for two DVD rentals. Users, who sign up for a subscription, can keep the DVDs as long as they want without having to pay any late fees. Netflix reported a 21 percent increase in first quarter revenue at $354 million, the AP said.

 

According to PricewaterhouseCoopers (News - Alert) research, consumers last year spent less money buying DVDs and more on rentals from stores, kiosks and online services like Netflix, the AP said. And that trend is expected to continue this year, it said.

 

As TMCnet reported earlier, Hastings said he believed the company has five to 10 more years before DVD rentals hit their peak. In that 2008 report, Hastings acknowledged the growing popularity of stand-alone DVD rental kiosks, as well as improving video-on-demand services from cable and satellite companies, and increased competition in streaming from Web giants likeAmazon.com (News - Alert) as risks to the business.

 

Yet, so far, Netflix’s DVD-by-mail service appears to be holding its own. In February, the company announced it surpassed 10 million total subscribers. As TMCnet reported, the company added more than 600,000 net subscribers since Jan. 1.

 

The service has become so popular that Spb Software, a Saint Petersburg, Russia-based Windows Mobile applications provider, unveiled mobile manager for Netflix. As TMCnet reported, the on-device application can be used to search the entire Netflix library, view movie details, manage the DVD queue, and add movies to the instant queue from windows phones.

 

What’s more, Netflix announced that it is now linked with Facebook, the 200-million-plus user social networking site.

 

But Redbox isn’t the only competitor looking to capitalize on kiosk rentals. Blockbuster reportedly plans to roll out 10,000 DVD kiosks of its own in a deal with NCR Corp. (News - Alert), the AP reported.

 

I can see the Redbox’s kiosk appeal. Where else can you rent a movie for $1? The ease of the rental is even more alluring. But as a new Netflix subscriber, I don’t think I’m going switch just yet. My decision doesn’t have much to do with loyalty. It’s more about convenience.

 

Call me lazy, but I prefer to have my movies shipped to me in the mail. I can hang on to them for as a long as I want, and I don’t have to pay a daily rate for the rental. Netflix also offers a larger selection, including an Internet streaming video product for older titles.

 

And the best part is I don’t have to waste gas trudging down to the store to return the flick. I simply have to walk 500 feet to my nearest mailbox.

Edited by Michael Dinan