Redbox, The Growing Problem For Studio Profits

DVD vending machine company Redbox is starting to really piss of the studios.  Warner Bros has just joined Fox and Universal’s plans to pull new releases from Redbox kiosks for the first month following their movies’ releases.  The negative sentiment stems from the studios’ belief that cheap kiosks are partially to blame for the eroding DVD market.  DVD sales fell 13.5 percent in the first half of 2009, while DVD rental revenue grew 8 percent.  With more viewers opting to rent rather than buy, it is understandable why the studios fear Redbox.  Coinstar’s Redbox delivers convenience at a cheaper price than anyone in the market.  With 17,900 kiosks in the U.S. and plans for 8,500 more this year, Redbox has become a serious threat to the studios’ DVD sales.

The core problem, as pointed out by Patrick Goldstein in the LA Times, is that Studios are trying to hang on to a dying business model.  Redbox’s revenues grew by 110% last quarter while Blockbuster’s second-quarter revenues plummeted by 22%.  Goldstein also correctly pointed out that “you can’t fight the power of consumer choice”.  Studios must recognize that DVD sales are a diminishing source of revenue and come up with innovative solutions to compliment the experience of their healthy revenue streams.