Redbox

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Redbox Automated Retail, LLC
Subsidiary
Industry Retail/DVD rental
Founded 2002; 15 years ago (2002)
Headquarters Oakbrook Terrace, Illinois, US
Area served
United States
Key people
Galen C. Smith, CEO[1]
Mitch Lowe, President (2009-11)
Gregg Kaplan, Founder and CEO (2002-09)
Parent Apollo Global Management
Website www.redbox.com

Redbox Automated Retail, LLC is an American company specializing in DVD, Blu-ray, and video game rentals via automated retail kiosks. Redbox kiosks feature the company's signature red color and are located at convenience stores, fast food restaurants, grocery stores, mass retailers, and pharmacies.

As of the end of November 2012, Redbox had over 42,000 kiosks at more than 34,000 locations.[2] As of Q1 2013, Redbox had 48% market share of the physical rental market.[3]

History[edit]

Redbox Automated Retail LLC was initially funded by McDonald's Corporation.[4] Originally the kiosks sold a variety of products under the name Ticktok Easy Shop, however in 2003 McDonald’s ended its use of the kiosks for these products. Instead, Gregg Kaplan decided to use the kiosks for DVD rentals instead.[5] The prices of the first rentals varied, until the company landed on the one dollar per day pricing, which it continued to have through its existence.[6] This led Redbox to become a disruptive force in the industry.[7] The company also employed a ‘return anywhere’ policy, different from competitors, which allowed consumers to return their rental to any Redbox kiosk, not just the one from which they originally rented the unit.[8] Kiosks rented both films and video games.[9]

In 2002, the company placed four automated convenience store kiosks that sold grocery items such as milk, eggs, and sandwiches as well as 11 DVD-rental kiosks in Washington Metropolitan Area locations. Redbox withdrew the grocery kiosks within a year, but the DVD-rental kiosks succeeded, and the company changed its focus to that market. In 2005, Coinstar bought 47 percent of the company for $32 million,[10] after unsuccessful attempts to sell half the company to Blockbuster and Netflix.[11] In early 2008, Coinstar exercised an option to increase its share from 47% to 51%.[10] In February 2009, Coinstar paid McDonald’s and other shareholders between $169 and $176 million for the remainder of the company.[12] While traditional brick and mortar rental stores were closing at a high rate, Redbox moved into existing retail locations such as supermarkets, and placed kiosks within them or outside of them in order to gain that consumer base.[13]

The company surpassed Blockbuster in 2007 in number of U.S. locations,[14] passed 100 million rentals in February 2008,[15] and passed 1 billion rentals in September 2010.[16] Competitors include Netflix and Blockbuster. In Q2 2011, kiosks accounted for 36 percent of the disc rental market, with 38 percent of that attributable to rent-by-mail services and 25 percent to traditional stores, according to the NPD Group. As of Q2 2011, 68 percent of the U.S. population lived within a five-minute drive of a Redbox kiosk.[17] The numbers for Q2 2013 shows that the Redbox rentals had surpassed 50 percent of the total disc rentals in the country.[18]

Mitch Lowe joined Redbox in 2003 after spending five years as a cofounder of Netflix. At Redbox, he started first as a consultant and then as VP of Purchasing & Operations. In 2005, he became the Chief Operating Officer of Redbox.[19] Lowe had experimented in 1982 with a short-lived VHS movie vending company named Video Droid.[20] Lowe was named President of Redbox in April 2009.

In July 2010, Redbox announced that they were beginning to rent Blu-ray movies at 13,000 kiosks nationwide, and Blu-ray Discs were available across the Redbox network by the fall of 2010.[21] In October 2010, the company began testing video game rentals in Reno, Nevada; Orlando, Florida; Stevens Point, Wisconsin; Austin, Texas; Wilmington, North Carolina; and Corvallis, Oregon. In June 2011, Redbox launched video game rentals nationwide. Games for all major platforms are offered, including Wii, PlayStation 3, and Xbox 360.[22]

In February 2012, Redbox announced the purchase of former competitor Blockbuster Express (NCR) for $100 million.[23] The acquisition included over 10,000 DVD kiosks, certain retailer contracts, and DVD inventory. As part of the agreement, Redbox entered a supplier arrangement of purchasing product and services from NCR.[24] On June 27, 2012, Redbox sent an email to its customers announcing that it had completed the purchase of Blockbuster Express on June 23.[25]

The company announced in February 2012 the deployment of kiosks in Canada to test the market in that country,[26] but in early 2015 shut down their Canadian operation, citing low demand.[27]

In 2012, Redbox's founder, Gregg Kaplan, exited Coinstar as president and COO of Redbox. Anne Saunders became the new president of Redbox.[28]

In July 2013, Redbox announced its 3 billionth rental of a disc, counting both movies and games.[29]

On October 7, 2013, Barry Rosenstein's hedge fund JANA Partners filed a 13D on shares of Outerwall (OUTR) and has disclosed a new 13.5% ownership stake in OUTR with 3,777,995 shares. The activist 13D filing includes that JANA expects to talk with management. In particular, they want to focus on "a review of strategic alternatives including exploring a strategic transaction, selling or discontinuing certain businesses, or pursuing a sale."[30] Rosenstein told "Closing Bell", about Redbox, the company is "gushing with cash".[31] On December 9, 2013, Outerwall cut 8.5% of workforce.[32]

The number of items rented from kiosks annually peaked in 2013, with 772.87 million rentals. There were then 717.13 million units rented, and in 2015 the number was 587.55 million,[33] a decline due to the increasing consumer shift from physical media to streaming and other online services. That year the company also moved its 1400 kiosks in Canada to other locations in the United States.[34] Still, as of 2014, Redbox represented half of the physical media rental market.[35] As of July 2016, Redbox offered Xbox One and PlayStation 4 games.[36]

Throughout most of 2016, former parent company Outerwall was seeking a buyer based on shareholder input. In early September, Outerwall was sold to Apollo Global Management and its three units (Coinstar, ecoATM and Redbox) were split into individual companies. In late September 2016, Outerwall CFO Galen Smith was announced as the new CEO of Redbox.[37] The company had approximately 40,000 kiosks in the United States as of January 2017. The kiosks are shifting around the country to different geographic locations in order to track consumer trends and in reaction to underperforming neighbourhoods.[38] Most locations only have one kiosk, however in some cases there will be more than one to deal with high traffic locales.[39]

Redbox Instant[edit]

Redbox began internally testing a video streaming service, dubbed Redbox Instant, in July 2012. The service is a joint effort between Redbox and Verizon.[40] On March 14, 2013 Redbox Instant by Verizon officially went public, offering customers a free 1-month trial of an $8/month unlimited streaming service that includes 4 disc rentals from kiosks ($1 more for Blu-ray).[41] The service launched with 4,600 titles from movie companies such as EPIX, Lionsgate, NBCUniversal, Paramount Pictures, Relativity, and Sony Pictures. According to early reports, Redbox Instant also planned to allow users to download content to mobile devices for offline viewing; titles could be either rented or purchased, in SD or HD quality, with rental customers having 30 days to begin viewing their title and 48 hours of unlimited views thereafter.[42]

In June 2013, Sony made the official announcement at E3 that Redbox Instant would be available on the PlayStation 4 console, and it was released in late 2013. Android and iOS apps also enabled streaming content on mobile devices.

Redbox Instant disabled sign-ups for new users in mid 2014 owing to a growing number of criminals using the website to verify stolen credit cards.[43] In Q2 2014 earning call, Outerwall, Redbox's parent company, stated that they were "not pleased" with Redbox Instant subscription numbers. [43] Finally on October 4, 2014, it was announced that Redbox Instant would be shutting down on October 7, only 19 months after its initial launch.[44]

Kiosk design and operation[edit]

A Redbox kiosk.
The carousel of disks inside of a Redbox machine.

Redbox began in 2004, using re-branded kiosks manufactured and operated by Silicon Valley-based DVDPlay, at 140 McDonald's restaurants in Denver and other test markets.[45] In April 2005, Redbox phased out the DVDPlay-manufactured machines and contracted Solectron—a subsidiary of Flextronics, which also manufactures the Zune, Xbox and Xbox 360—to create and manufacture a custom kiosk design.[46] The new kiosk was designed by Franz Kuehnrich at GetAMovie Inc.[47] (which was bought by RedBox). It was innovative [48] in that its carousel design not only decreased the number of robotic movements necessary to dispense and restock inventory, it also dramatically increased the number of discs (from 100 to 700+)[49] that could be stored within a kiosk. In addition, the software, designed and developed by Enterprise Logic Systems,[50][51] was also innovative in that it allowed RedBox to remotely monitor and manage inventory at all kiosks throughout the country.

A Redbox barcoded DVD tray, delivered by and returned to the kiosk.
Back of a Redbox Blu-ray tray; with a Men in Black 3 disk

The company's typical self-service vending kiosk combines an interactive touch screen and sign. It uses a robotic disk array system containing a stacked carousel of DVDs[52] and web-linked electronic communications. Kiosks can be located indoors or out and can hold more than 600 DVDs with 70–200 titles, updated weekly.[53] The kiosks are built as modules, and in areas with higher sales figures, a second machine can be connected to the first one in order to offer a wider selection. The customer pays with a credit card or debit card. DVDs can be returned the next day to any of the company's kiosks; charges accrue up to 25 days, after which the customer then owns the DVD (without the original case) and rental charges cease. Customers can also reserve DVDs online, made possible by real-time inventory updates on the company's website.[54] While customers can buy used DVDs from the kiosks (with unsold used DVDs returned to suppliers), Redbox estimates only 3% of the company's revenue comes from used-disc sales.[55]

A Redbox kiosk rents its average DVD 15 times at an average of $2 per transaction plus any applicable taxes.[20]

Movie studio distribution issues[edit]

With growing concern in 2009 that DVD kiosks might jeopardize movie studio income from DVD sales and rentals, three major movie studios, 20th Century Fox, Warner Bros., and Universal Studios, separately refused to sell DVDs to Redbox until at least 28 days after their arrival in stores.[20] Fox and Warner Bros. represented 62 percent of home video rental revenue in 2008–09.[56][57]

Redbox responded by filing lawsuits, first, against Universal in October 2008,[58] then against 20th Century Fox and Warner Bros. in August 2009.[59][60] In August 2009, the federal judge hearing the Universal case allowed an antitrust claim to continue.[61] In October 2009, 20th Century Fox and Warner Bros. filed motions to dismiss Redbox's lawsuits against them.[62][63] During this time, Redbox continued to rent films from these companies, purchasing them retail from places like Walmart instead of receiving them from the movie studios, which in some cases saved Redbox in costs due to the discounted prices offered by retailers.[6]

Other major studios — Sony Pictures, Paramount Pictures, and Lionsgate — signed distribution deals with Redbox.[20] The Walt Disney Company permits third-party distributors to sell to Redbox, but has not entered into a direct relationship with the company.[20] Both sides of the studio lawsuits pointed to these revenue-sharing deals to shore up their argument, with Redbox president Mitch Lowe saying, "our growth can lead to theirs [the studios' growth]. For example, Redbox currently estimates we will pay more than a combined $1 billion over the next five years to Sony, Lionsgate and Paramount to purchase and then rent new-release DVDs to consumers,"[64] while Warner Bros. says the deals are proof that far from being shut out by Hollywood, "Redbox’s business has thrived since its suit against Universal, underscored by lucrative distribution deals with Paramount Home Entertainment, Sony Pictures Home Entertainment, and Lionsgate."[63]

Redbox entered into an agreement with Warner on February 16, 2010,[65] followed by Universal[66] and Fox[67] on April 22, 2010. In the agreements, which settle Redbox's lawsuits, Redbox agreed to not make available for rental films from these studios until 28 days after their initial home-video releases. Redbox continued to sign additional and new distribution deals with these and other movie studios.[68]

See also[edit]

References[edit]

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External links[edit]