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Blu-ray Rentals Likely $1.50 a Night at Redbox Kiosks

3 Jun, 2010 By: Chris Tribbey

CENTURY CITY, Calif. — Redbox president Mitch Lowe said the kiosk company would likely bow Blu-ray Disc rentals at $1.50 a night, a premium over the chain’s traditional $1-a-night DVD rental.

Blu-rays will start appearing in Redbox kiosks within the next few months, he said.

Lowe made the announcement during a keynote speech at the Entertainment Supply Chain Academy Edge conference June 3.

The news comes just over a month after Redbox inked deals with both Universal Studios Home Entertainment and 20th Century Fox Home Entertainment, which will put new releases from those studios in Redbox kiosks 28 days after street date. Those deals, as well as one with Warner Home Video, also include Blu-ray.

“Lately I’ve been able to hug [Universal Studios Home Entertainment president] Craig Kornblau, which is a great feeling,” Lowe said, earning laughs from those in attendance. “Not too close though.

“We’re really excited about our studio relationships, which has been a big change from last year.”

Lowe said 16.9% of Redbox customers own a Blu-ray player and that he believes Redbox’s 23% share of the rental market will help drive Blu-ray adoption. He added that consumer awareness of Redbox hit 72% in April, compared to 17% in February 2009.

Citing NPD Group data, Lowe noted 20% of Redbox customers say they would not have bought or rented a certain DVD if it were not available at Redbox. He also noted 41% of Redbox customers rent before they choose to buy a certain title, with 9% of those rentals resulting in a sale. Redbox rents nearly 40 million DVDs a month and recently passed the 750 million number for total rentals.

Lowe said Redbox was actually helping the studios’ sellthrough business, rather than harming it.

“We’re going to be driving awareness of your product to purchase where we’re at,” he said.

Lowe also said Redbox will soon test sellthrough of catalog titles for $5, $7 and $9. He said Redbox renters buy 6% more new DVDs than non Redbox renters and that heavy Redbox renters (those renting once or more a week) buy 42% more than non Redbox renters.

Lowe hinted that the low Redbox rental price is right for the times.

“There’s been a big change in customer behavior,” Lowe said. “They’re being much more frugal.”

His comments meshed with data given earlier in the day by Billy Law, director of home entertainment measurement for The Nielsen Co. He reported that in 2009 more than 70% of DVD households cut their home entertainment spending, with a similar percentage of Blu-ray households doing the same. Nearly half of those surveyed pointed to the economy as the reason for cutting back.

Forty-three percent said that instead of discs. they were watching cable instead, while 19% said that instead of buying, the use a DVD subscription service like Netflix. Seventeen percent said they were using kiosks like Redbox.

Overall, consumer spending on DVD was down 9% in 2009, Law said, a third straight year of decline.

“We know Blu-ray has been growing … but it hasn’t been enough to this point to offset the decline in DVD sales,” he said.

Compared with DVD, Blu-ray adoption is slower than DVD was by its fourth year, with 7.8% of American households currently reporting Blu-ray purchases, he said. That figure was 9.1% for DVD when it hit its fourth year.

Year over year, new release DVD sales were down 20% in 2009, Law added.

With physical media sales still down, studio representatives at the conference discussed their strategies for keeping costs down along their supply chains.

“I wouldn’t wish this economic situation on ourselves, but as a result you had to make a lot of hard choices you may not have made,” Dan Miron, EVP of worldwide supply chain management for Warner Home Video, told his fellow studio supply chain experts.

Collaboration between studio departments; rethinking distribution strategies as a global endeavor, rather than a regional one; better forecasting of a title’s performance; cutting down on returns (“A never-ending battle,” noted Tony Korkunis, SVP of retail development for 20th Century Fox Home Entertainment); and simple cost-cutting measures were among the general ideas thrown around.

“Are we actually shipping everything that we make?” was one rhetorical question asked by Akin Ceylan, EVP of supply chain and operations for Lionsgate, that had heads in the room nodding up and down.

It’s not just the physical disc executives who are worrying about supply chain efficiencies. Studio’s digital distribution departments may have an even tougher task, since standards are practically nonexistent in the electronic rental and sellthrough space.

“You have to build a custom supply chain for every customer you have,” said John Crosier, director of global operations for Warner Bros. Digital Distribution.

Robert Blatt, SVP of product and service development for Ascent Media, called digital distribution “inferior to what packaged media brings” but acknowledged that because standards are so lax, distributors of digital content try to do more to stand out.

“They all have the same content and need to find a way to differentiate themselves,” he said. “In the physicals world you can’t mess with the content. In the digital world you can.”

Richard Berger, SVP of global digital strategy and operations for Sony Pictures Home Entertainment, said until electronic delivery standards are agreed on, the digital space will continue to be like “a format war on steroids.”

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