By : Chris Tribbey | Posted: 31 Jul 2009
As a founding senior executive of Netflix, and with more than a quarter-century of experience in the video industry, Redbox president Mitch Lowe knows how to do rental.
Joining Redbox in May 2005 as COO, coming over from McDonald’s, Lowe helped Redbox grow from a dozen lonely DVD kiosks, to a 17,000-plus rental machine giant, with more than 440 million rentals in under five years. He can take credit for ushering in the $1-a-night new release rental idea that’s brought joy to consumers and headaches to studio executives.
Rentrak has rentals up more than 8% this year, and the studios have noticed: Redbox last month reached a five-year, $460 million agreement with Sony Pictures Home Entertainment. When Universal Studios Home Entertainment tried to establish revenue-sharing terms for its DVDs, Redbox took the studio to court in October 2008.
Lowe talked with Home Media Magazine about Redbox’s relationship with the studios, video game and Blu-ray Disc rentals, and the threat of electronic delivery.
HM: In less than five years Redbox kiosks have expanded nearly 10-fold. Today, weekly Redbox DVD rentals are up to more than 7 million, compared to less than 25,000 in 2005. What is driving this growth?
Lowe: Redbox growth can be attributed to a combination of factors. On the consumer side, Redbox offers the convenience of providing consumers with access to DVD rentals where they shop, value, and an easy, simplistic rental experience. On the business side, our retail partners benefit from the value in revenue share and increased consumer visits generated by Redbox. They can also rely on our unparalleled operations team that ensures kiosks are installed on time and operating effectively.
HM: How does Redbox view the long-term future of packaged media, considering the specter of electronic movie delivery?
Lowe: There is no question that electronic delivery of content is gaining in popularity. However, actual penetration and use as a percentage of sales is still relatively modest. For at least the next five years, we expect more than 70% of the movie rental market will still be using physical media. And, while the overall DVD market may be declining slightly, our overall share of the physical market should continue to increase.
Though digital media is not anticipated to immediately increase, Redbox is well positioned to succeed in both the digital media and physical media space. Our future strategy encompasses both “clicks” and “bricks.” We have what no other digital distribution company can claim: a physical presence through our retail partners at over 17,000 locations and growing. And, we are uniquely positioned to host conversations with our customers throughout their consumption of entertainment media, in whichever format they prefer.
HM: Grocery and drug stores are Redbox havens. Barriers aside, what arenas would be most beneficial for Redbox, and what may be keeping Redbox from looking at other high-traffic areas, such as airports, transit stations and, maybe, street corners?
Lowe: Redbox has built a national network by partnering with grocery, drug, convenience, mass and McDonald’s retailers. We continue to evaluate new venues to provide our consumers with convenient rental solutions. Currently, we are evaluating a variety of new channels including airports, public libraries and more. Our growth potential is tremendous.
HM: Redbox is testing Blu-ray disc rentals. What’s standing in the way of widespread Blu-ray rentals in Redbox kiosks?
Lowe: Redbox is testing Blu-ray title rentals at select locations in a limited number of markets nationwide. We are continuing to evaluate those markets to make informed decisions and best serve our customers moving forward. We also continue to evaluate the appropriate price point for Blu-ray and plan to test increased price points in the near future.
HM: What potential exists for video game kiosk rentals, and how committed is Redbox to exploring that market?
Lowe: The video game rental market represents a huge opportunity for Redbox. As the number of brick-and-mortar stores continues to decline and with more women and mature audiences entering the market, the demand to rent video games is greater than ever. We are constantly looking for new ways to enhance the customer experience and to further our position as an entertainment destination. Video games are a natural fit when it comes to that commitment.
HM: Sellthrough for the DVD industry is sharply down, but rental is seeing a resurgence. What impact do you think the price and convenience of Redbox has on DVD purchases and how does Redbox support the studios that ultimately produce the content consumers are renting?
Lowe: The factors driving the resurgence of rental are much larger than Redbox. There is no denying the impact the recession has had on the DVD industry. As consumers look for more affordable entertainment options, Redbox has helped revitalize the DVD industry by creating incremental rentals among viewers who previously were priced out of renting and buying DVDs. Industry analysis conducted with a few of our retail partners and a major home entertainment distributor also shows that in stores offering both Redbox kiosks and DVDs for purchase, Redbox most likely has a negligible impact on sales.
When it comes to supporting the studios, Redbox creates a new revenue stream. Redbox pays more per DVD unit than any other national rental provider. Our recent agreement with Sony Pictures Home Entertainment indicates that studios do see tremendous value in partnering with Redbox.