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Redbox Revisiting Digital Distribution?

24 Mar, 2016 By: Erik Gruenwedel

Redbox reportedly is considering revisiting digital distribution — about 18 months after shuttering Redbox Instant, a hybrid disc/subscription streaming service.

A Variety report, citing sources, says the new service would focus on transactional VOD, a crowded business model featuring iTunes, Amazon Instant Video, FandangoNow, Google Play and most pay-TV operators, among others.

A media representative from Redbox’s corporate parent Outerwall declined direct comment. In an emailed statement, she said Redbox continually looks for ways to enhance its customer experience while maintaining its priority of managing the business for profitability and cash flow.

Redbox saw fourth-quarter operating income and revenue fall 50% and 17%, respectively.

“For tens of millions of consumers, Redbox is their source for new-release rentals without a subscription. As such, we regularly conduct tests of potential offerings, as part of our ongoing commitment to provide value for our stakeholders,” Outerwall said.

Interestingly, Thomas K. Arnold, publisher of Home Media Magazine, in a Feb. 26 op-ed, suggested Redbox launch a transactional VOD/electronic sellthrough platform — using the company’s extensive consumer email database as a means of marketing digital movie rentals directly to consumers.

"Electronic sellthrough and transactional VOD are good options to deliver to Redbox's 40 million emails. I’m sure the studios would wholeheartedly support such a move, since they’ve been trying for years to develop a viable EST business through early release windows and other incentives to the consumer," Arnold wrote.

The logistics of launching a transactional VOD/EST platform would be significant, however. Redbox would have to bow an app linking the service to the TV via third-party streaming media devices such as Roku, Amazon Fire TV or Google Chromecast.

Titles would have to be less expensive than the current industry norm of $5.99 for new releases; $1.99 to $3.99 for catalog. The likelihood of Redbox tweaking digital rental pricing downward would be dependent upon whether other digital distributors would be allowed to do so as well.

Indeed, transactional VOD is 300% more expensive than a current Redbox DVD rental; 200% higher than Blu-ray Disc, a competitive advantage Outerwall senior management has repeatedly stressed during fiscal calls.

Wedbush Securities senior media analyst Michael Pachter believes Redbox is trying to take advantage of "sunk costs" assciated with launching Redbox Instant, while also trying to capture the customer who goes to Redbox.com searching for a DVD.

Pachter said transactional VOD would allow them to monetize that search instantly. At the same time, the analsyt said Redbox faces challenges incentivizing consumers to search for the requisite Redbox Digital app.

"Since so many [transactional VOD] options already exist, I am not optimistic that they will get much traction." 


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