[kp212]

I understand DVD sales from retail outlets being harmed. However, I've always wondered why rentals get harmed, doesn't Redbox have to follow the same channels as Netflix, Blockbuster and pay for DVD's that are rented? I've always wondered how the rental portion of the market in terms of revenues works.

[pyre]

I don't work for Redbox so I don't know for sure, but I'm speculating that they maybe using the Krispy Kreme model (i.e. their growth is based on expansion). In other words, since they keep opening up new kiosks they can move product that is not selling well in one kiosk to another new kiosk, rather than it being a sunk cost if they buy product for an area and it doesn't end up selling well. At some point, they may end up collapsing in on themselves if they are not able to raise their prices to account for such write-offs (as their expansion slows). Though my theories could just be hot air since I neither work for them nor am I an MBA (or an economics major at that).

I know that they are looking to raise prices: http://www.insideredbox.com/redbox-begins-testing-higher-ren...

Blockbuster is trying to compete with kiosks too: http://paidcontent.org/article/419-blockbuster-adds-dvd-vend...

[philwelch]

Right now, there are two ways to "own" a movie:

1. Buy the DVD.

2. Rent the DVD and rip it onto your hard drive.

Selling is more lucrative than renting for some of the same reasons that renting is better than buying: selling happens at a higher cost and the end consumer gets a physically fragile disc instead of a readily backupable set of data. We're talking orders of magnitude here: the movie industry could sell a DVD to you, or they could sell it to Netflix or Redbox, in which case at least dozens of people can rip a copy.

Thanks to first-sale doctrine, Hollywood can't even price-discriminate against Netflix or Redbox. To recoup their losses, Hollywood would have to charge Netflix maybe $200 for a $20 DVD. First sale allows Netflix to buy the same shrinkwrapped DVD for $25 from whoever bought it from Hollywood in the first place. Even if Hollywood clamps down contracts against all the possible mass distributors, end customers could play arbitrage on DVD's. Netflix would probably even mail you the empty envelope to do it in.

Obviously, as more people choose door number 2 over door number 1, the movie industry's DVD revenues will diminish significantly. That's the threat of Redbox: whenever you push down the threshold of renting a movie, especially to a psychologically insignificant level, you make it more and more likely that "buying a movie" will drop down that order of magnitude. Blockbuster and Netflix have psychologically high barriers of entry: you have to sign contracts, carry around a card, drive to the store, pay for a monthly membership, or otherwise make some sort of commitment. Redbox? You put four quarters in the machine and you get a movie for life if you can run Handbrake. That's the same cost and the same level of commitment it takes to do your laundry, minus having to carry around laundry.