The DVD rental isn’t dead yet.
Redbox is bringing its popular vending-machine DVD business to Canada’s billion-dollar movie-rental market, aiming to fill a void created by the failure of Blockbuster Corp. and other traditional video stores.
Along with Netflix Inc. , Redbox Automated Retail LLC is credited with revolutionizing the movie rental business in the United States and helping to persuade some cable and satellite television subscribers to cut their cords and rely entirely on the easily accessible, lower-cost offerings.
The Oakbrook, Ill., company, a unit of Coinstar Inc., has quietly laid the groundwork for a Canadian launch and will set up a few hundred kiosks in the coming months to decide whether to jump fully into the market. It has 29,000 kiosks through the United States that offer movie and game rentals for less than $2 a day.
“The combination of Redbox and Netflix completely destroyed the store channel in the United States,” said Brahm Eiley of Convergence Consulting Group. “And they also encroach on television subscriptions,” he said. “Cord cutting in the U.S. is almost triple what it is in Canada.”
Redbox chief executive officer Paul Davis told investors during a conference call that Canada represents a “decent opportunity” for the company and its kiosks. He provided few details of the company’s plans, although it already owns the rights to about 100 kiosks formerly operated by NCR Corp.’s rental division, which it bought recently.
There has been a vacuum in the Canadian DVD rental industry since Blockbuster Canada was pushed into receivership last year. More than 400 stores were closed across the country, and other retailers have also been scaling back. Rogers has reduced its rental store locations, as it focuses on video-on-demand offerings.
With video rental stores in decline, consumers are quickly turning to other options for watching movies at home. On-demand services are convenient but can be pricey compared with traditional rental fees. Netflix offers unlimited streaming for less than $10 a month, but selection is limited and the service eats up Internet bandwidth.
Several companies such as Best Buy are trying to get DVDs to consumers through kiosks, but they only own about a few hundred stands in total. If Redbox were to expand in Canada at the same pace as in the U.S., 2,900 of its bright-red kiosks could spring up across the country.
In the U.S., the company partners with retailers and fast-food restaurants to place its rental booths. They take up about 12 square feet of space, and rentals can be returned to any of the company’s kiosks anywhere in the country.
Movie-rental services face challenges in Canada, such as setting up distribution agreements with movie companies that aim to keep a healthy share of the profits. Several companies have imposed restrictions on Redbox in the United States, such as preventing it from buying new releases until they have been on the market for a set amount of time.
While Redbox’s entry into the Canadian kiosk industry threatens to cut into traditional rental offerings, it’s the company’s recently announced partnership with Verizon Communications Inc. that has many wondering about the company’s broader ambitions.
“I know this sounds stupid here, but why not,” Disney chief executive officer Robert Iger said Monday during the company’s conference call. “I read the Verizon-Redbox article about four times and I even turned it upside down and sideways, and I'm still not 100 per cent sure I understand what they’re offering.”
Verizon and Redbox have purposely released few details, but it’s suspected the companies want to launch a “Netflix killer,” offering streaming content through Verizon’s network as well as the option to obtain hard-copy DVDs in major centres.
Convergence Consulting’s Mr. Eiley said companies such as Disney – or Canadian companies such as BCE Inc. or Rogers Communications Inc. that own a lot of content – could potentially licence their shows to Redbox, creating new revenue opportunities for traditional operators.
“There’s no way to know what they are actually planning to do with that partnership because they haven’t said what they are doing yet,” Mr. Eiley said.