Redbox: Customers as likely to buy DVDs as others

Kiosk-leader's patrons will account for 9% of DVD sales this year

By Danny King -- Video Business, 3/12/2009

MARCH 12 | Redbox customers buy the same amount of DVDs at retail prices as customers of chain-store competitor Blockbuster and movie-rental via mail leader Netflix, according to Redbox, suggesting the largest U.S. movie-kiosk service isn't cannibalizing DVD sales.

Redbox customers will buy about 77 million DVDs this year, or about one out of 11 sold this year, the company said, citing its own data and an NPD Group survey. About 30% of those purchases will stem from the customer renting the movie from Redbox first, the company said.

"Redbox customers are passionate and active in both the rental and retail space," Mitch Lowe, Redbox's chief operating officer, said in the statement. "As the company’s retail footprint and customer base continue to grow, so will Redbox’s investment and positive impact on the DVD industry."

Redbox boosted its machine count to 12,900 from 6,550 last year, through agreements with chains such as Wal-Mart and Walgreens, and will install as many as 8,000 new machines this year. But the company's rapid growth hasn't been without its issues with movie studios.

In October, Redbox sued Universal Studios Home Entertainment, alleging that the General Electric unit violated anti-trust laws by insisting on a revenue-sharing agreement with Redbox that, among other things, enforces rental-date and resale restrictions. Universal, which in December filed a motion to dismiss the lawsuit, stopped distributing product to Redbox through VPD and Ingram on Dec. 1, forcing Redbox to make alternative arrangements for Universal titles, which make up about 15% of Redbox inventory.

Last week, Redbox said it opposed Universal's motion to dismiss the lawsuit despite recently agreeing to mediation.

Last month, Redbox owner Coinstar said fourth-quarter profit from its DVD operations, which include Redbox and the much smaller DVDXpress, rose 119% to $20.4 million on sales that were up 158% to $133.8 million. With as many as 20,000 Redbox machines in place by the end of 2009, sales this year will be as much as $750 million, with earnings as much as $120 million, Coinstar said.

Coinstar, which estimated Redbox’s same-store sales growth last year at more than 50%, also said last month that it would buy the 49% of the company it doesn’t already own for about $175 million in cash and stock.