Redbox CEO touts DVD's future
By Danny King -- Video Business,12/30/2008
DEC. 30 | Redbox CEO Gregg Kaplan this year has helped the company widen its position as the leader in the U.S. movie-rental kiosk industry, which is expected to grow over the next few years as video store chains such as Blockbuster and Movie Gallery close underperforming stores. Under Kaplan, a former McDonald's executive, Redbox this year will have doubled the number of its kiosks in the U.S. to about 12,000, securing agreements to put more machines in retail chains such as Wal-Mart and Walgreens in the process.
Kaplan
VB: Pundits have long been predicting the demise of the DVD as other forms of content delivery such as video on demand, video-streaming and downloading become more popular. What's your response to this?
Gregg Kaplan: Redbox is a firm believer in the viability and profitability of DVDs. Consumers who were not renting DVDs a year ago are now reconsidering DVDs as a result of the unparalleled access and price point kiosks provide. Consumers are replacing old DVD players with new Blu-ray players to enhance their movie experience, while cementing their relationship with DVDs. Dollars previously invested in out-of-home entertainment are being reallocated to home entertainment.
Emerging technologies such as burn-on-demand kiosks and digital downloads are popular topics for media and analysts because the technology is new and sounds exciting. However, our research confirms that current restrictions on content availability, pricing and technology greatly limit the consumer appeal of many emerging entertainment media. For example, digital download pricing, averaging about $3.99 per movie, cannot compete with Redbox’s $1 per night price point. In addition, downloading a DVD-quality movie takes hours over DSL or cable Internet, which is very inconvenient for those consumers looking to watch a DVD at a moment’s notice. The majority of consumers prefer physical media. Understanding this preference, along with the higher price point and lengthy download times associated with burn-on-demand and digital download services, the DVD industry will be a preferred option for consumers for many years to come.
VB: Can the movie-rental kiosk industry continue to grow at its current pace, and do you think the growth is largely because of shrinking video store counts or is it independent of that?
GK: While ongoing closures of bricks-and-mortar locations have been well-documented, Redbox’s success is driven by a unique value proposition with mass consumer appeal that is independent of our competitors’ business. Redbox will continue to grow at a brisk pace. Our internal estimates suggest current Redbox market share is between 5% and 10%. As we continue to expand our retail footprint and customer base, I expect Redbox’s market share will continue to increase.
VB: Do you have any concerns about Blockbuster's agreement with NCR to build about 10,000 kiosks for that chain over the next few years?
GK: While it is Redbox's policy not to comment on our competitors, I can tell you that we have over six years of planning, consumer testing, refinement and operations expertise to ensure a seamless experience. We continue to enhance our at-kiosk and online technology to provide the highest level of service and will continue to evaluate opportunities in order to provide our customers with unsurpassed value and convenience.
VB: You sued Universal Studios Home Entertainment in October, alleging that it violated anti-trust laws by insisting on a revenue-sharing agreement with Redbox that, among other things, enforces rental-date and resale restrictions. Universal stopped distributing to Redbox this month for not signing the agreement and, as a result, Redbox didn't stock titles such as Wanted until three days after the Tuesday street date. What's the status of the lawsuit, and how will Redbox get around this roadblock?
GK: I cannot comment on pending litigation. We will continue to streamline our distribution process of Universal titles and anticipate delivering all Universal titles prior to the weekend rental rush. We will continue to take action as needed to protect our business model and to ensure our customers continue to receive the latest new release DVDs—when they are released—for $1 per night. Yes, the new acquisition arrangements came at an increased cost to Redbox. I will not disclose the specific acquisition arrangements or costs, but I will tell you that Redbox is committed to offering consumers the value and convenience they have come to expect from Redbox.
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| Submitted by: | Mark Tusher (markymnstr@aol.com) 12/31/2008 9:31:37 PM PT |
| Occupation: | Video retailer emeritus. |
While I appreciate that space is limited I would have appreciated a question or two, and perhaps a follow up on profitability. In light of the Wall Street meltdown and various smoke and mirror hedge fund scandals as well as pervasive Madoff type panzi schemes, I thought perhaps such an inquiry would be propitious. Especially one that did more than scratch the surface or could be answered with a yes or no, or no comment.
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