Time for Redbox to Go Digital Again

26 Feb, 2016 By: Thomas K. Arnold

Redbox has always been a successful fluke — a company that began renting discs at a time when everyone else was selling them, out of vending machines long after such a concept had been tried, tested and tossed by grocers back in the VHS era.

But Redbox confounded the “experts” and was a smashing success, playing into those key drivers of consumer habits, convenience (right outside Walmart or inside the supermarket) and cheap (a buck a night, initially; now $1.50).

I remember when Redbox used to give studio executives almost as many headaches as Netflix, triggering sales bans, lawsuits and, ultimately, the current wave of 28-day holdbacks from Warner Bros., 20th Century Fox and Universal Pictures.

But after years of flying high, Redbox has begun a rather rapid descent. Outerwall, Redbox’s owner, recently announced that in the fourth quarter of 2015 revenue was down 17% and movie rentals were down by an even higher percentage. Rentals are expected to decline an additional 15% to 20% in 2016, prompting Outerwall to scale back its fleet of vending machines, cutting out as many as 2,000 of its 35,000 red kiosks.

What I can’t figure out is why Outerwall doesn’t tap into its most precious asset — gobs of consumer data — and do something with it. Oh, sure, the company has jumped on the data analytics bandwagon like everyone else and is using a data visualization tool to figure out the best places to put new kiosks.

But that only affects the company’s current business model, which shows every sign of cratering.

Redbox/Outerwall needs a strategy session in which the company can figure out a smart, sensible approach to tap into the digital marketplace. I know, I know — the last time Redbox tried getting into electronic delivery things didn’t work out so well. In partnership with Verizon, Redbox in March 2013 launched a subscription streaming service that was a disaster, chiefly because the ill-conceived venture took aim at Netflix without any sort of superior value proposition. As I wrote in October 2014, when “Redbox Instant by Verizon” — catchy name, eh? — was mercifully shuttered, “Generally, if you take aim at a competitor, you build a better mousetrap, as they say. Apple entered the cell phone market with the iPhone; Sony jumped into the video game business with the PlayStation.”

But now, opportunity is knocking once again. Electronic sellthrough and transactional VOD are good options to deliver to Redbox's 35 million emails, although questions remain about how tech-savvy their customers are. Regardless — 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. So far, there’s been just one real success story, Apple’s iTunes.

Redbox could harness its many years’ worth of consumer data and offer its customers the chance to buy (or stream, on an a la carte basis) movies in a way that’s even simpler, and easier, than sticking a credit card into a vending machine. It would take time and a smart, measured approach, with data-driven micromarketing and sensible pricing.

But it’s certainly worth considering, and soon. Time is running out. The smaller Redbox’s existing business gets, the less consumer data there is to mine. And while Redbox vending machines won’t disappear overnight — it’s a still a cheap and easy proposition, compared to other entertainment alternatives — the digital migration is accelerating.

And businesses that want to be around five, three, even two years in the future had better climb board — now.

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About the Author: Thomas K. Arnold