Mark Horak: Redbox is Not a Subscription Business

24 Nov, 2014 By: Erik Gruenwedel

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Following the shutdown of Redbox Instant, kiosk vendor is looking to expand its market leader (more than 3.7 billion discs rented) status with transactional — not subscription — rentals

As a former executive at Warner Home Video, Mark Horak’s hire this year as president of Redbox brought a renewed focus on its core product: Movies and video games. Coming from a studio business predicated on weekly new releases, Horak has sought to use the kiosk vendor’s ubiquitous presence across the retail landscape to expand the transactional business model.

That's no small task in a home entertainment market increasingly dominated by all-you-can-stream video services offered at loss-leader prices. So how does raising the daily rental rate for DVD, Blu-ray and video games from 25% to 50%, respectively, win over the hearts and minds of budget-conscious consumers? We asked him.

Mark Horak: Redbox is continuing to deliver a superior consumer experience as we transition ourselves as the ‘best value’ in home entertainment. We are continuing to look at ways at delivering value through additional services like title curation and information to consumers about what is available to rent locally at our 42,000 kiosks at 36,000 locations nationwide. (Redbox also operates about 1,500 kiosks in Canada).

Home Media Magazine: Are you concerned about consumer pushback similar to what Netflix experienced when it raised prices $1 earlier this year?

Horak: The Redbox rental of new-release movies still is the best value entertainment. They are a 1/3 the cost of a digital rental of new-release movies. Netflix has catalog and Redbox has new release. We will continue — even with this price increase — to offer the best value in new-release home entertainment by far. Redbox offers value to the home entertainment content producers and game publishers by attracting marginal consumers who don’t want to pay acquisition prices but still want to consume content on a paid transactional basis.

HM: Would Redbox ever consider renting complete-season TV boxed sets or individual episodes considering the market push toward episodic programing?

Horak: No. If you look at the release pattern for new-release theatrical product versus television programing, the release patterns are very different. New-release movies fit better in our business model and where we fit in the distribution ecosystem. TV content can be made available through catch-up, day-after or a variety of different devices and platforms. But as it relates to movies and feature films, the current strategy of providing windows of availability for new-release movies and where Redbox fits into that distribution pattern is our uniqueness in the marketplace and our strength.

HM: How do video games fit into that distribution?

Horak: There’s a very wide price gap with new-release games between the Redbox rental and the ownership, which typically is $60 for new IP. Our $3 game rental is still a very good value proposition. And a great way for consumers to try to experience new titles prior to making a more expensive purchase decision.

HM: Is the typical game rental longer than a movie?

Horak: Primarily for Redbox, games are a huge opportunity to expand our presence in the physical business and extend the life expectancy of our kiosks by adding additional physical media in adjacent categories with a huge price gap. The games business has been shifting to big, triple A, mega titles, and secondary games content still priced high might be a hurdle that Redbox can actually overcome by giving consumers access through trials.

HM: Why did Redbox Instant fail? Was it the cost of licensed content? Have Netflix, Amazon, Hulu raised the cost of entry too high for potential SVOD players?

Horak: The Redbox Instant subscription failed. Redbox has a role to play in the transactional ecosystem. We are investigating and formulating plans to bring the value of our huge digital network of 36 million email users, 25 million mobile app downloads to the transactional space. We are biggest transactional player with 775 million transactions last year with 40 million active consumers.

What would the world look like if the business goes all subscription? That is the question [the industry] should be asking. Content creators can maximize their profitability by having a balance between transaction and subscription services. And Redbox offers a key part of the transactional business. You don’t want one or the other at the extreme. It’s about balance.

HM: Is there too much of push toward SVOD within the industry?

Horak: No. When I came to Redbox my question was, ‘How does Redbox offer value to the home entertainment business?’ By being such a large transactional player that appeals to large number of consumers who still want to pay for new release content. That’s where we add value.

HM: Would Redbox offer a transactional VOD service?

Horak: We’re investigating alternatives following the Redbox’s exit from the Instant joint venture [with Verizon Communications]. The subscription offer from that initiative [was not our strength]. Even with the price increase we are still by the far the best value to rent three movies for the price of one on-demand title. Many consumers have participated in our loyalty (Play Pass) and promotional programs to get access to new releases for free. We have over 1 million consumers already signed up to Play Pass (which offers a free rental after 10 paid rentals).

As with any loyalty program, there are incentives for those who participate and build a relationship with the brand. They then get various offers.

HM: A common occurrence at Redbox kiosks — especially on weekends — is waiting in line to rent a movie. How can you expedite the consumer transaction, or is that even possible?

Horak: That’s what we’re trying to accomplish by investing more in the consumer experience. We want to invest in the technology, the curation and specific recommendation of titles to individuals [electronically], to make the Redbox experience twice as satisfying in half the time. To do that, you use online, email, social media and apps. This category has so much new product on a weekly basis, people are looking for help in identifying what is available and what would interest them. So, by investing more in our relationship with customers, we will be building a better foundation for a future where Redbox could participate in other [digital] transactions.

 

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