Karen Forman constantly needs something from the grocery store. Milk, bread or a movie.
Yes, a movie.
Renting movies has never been more convenient, cheap or ubiquitous.
Redbox, the $1 do-it-yourself rental machine the size of a refrigerator, offers DVD movie renters convenience at a place people visit all the time: the grocery store, among other places.
"It's right there," Forman said as she dropped off a movie at Harris Teeter in Mount Pleasant on her way home to downtown Charleston. "You don't have to make another stop."
For $1, customers swipe their ATM card and can take home the latest new releases, such as "Gran Torino," "The Da Vinci Code" or "Valkyrie." There's even something for the children in the automated kiosk. The latest "Scooby-Doo" and "Spider-Man" animated DVDs are right there, too.
Redbox operates more than 15,400 kiosks throughout the United States — Blockbuster Inc. has just 50 — and Redbox plans to introduce about 5,000 more by the end of the year. Each machine holds as many as 700 DVDs and 200 movie titles.
And they are not just at supermarkets. They are popping up at drugstores, restaurants and convenience stores. You will find them at Wal-Mart, Walgreens and McDonald's, for instance.
"We are in locations where consumers are already shopping," Redbox spokesman Chris Goodrich said. "We are saving customers that extra stop."
An added bonus is that DVDs don't have to be returned at the same place they were rented.
Andrea Gorno of Johns Island can attest to that.
On her way to drop off her boyfriend at work in Mount Pleasant last week, she stopped by Harris Teeter to deposit a DVD they rented over the weekend on James Island. She also selected another one.
"It's very convenient, and it's cheap," she said.
Customers rent a DVD from the machine using their ATM cards, which enables Redbox to charge an additional day's rental if the DVD is not returned within 24 hours. If a DVD hasn't been returned in 25 days, the charges stop and the customer owns the DVD.
A typical kiosk can earn quite a haul: about $50,000 annually in revenue per machine in operation after three years.
"We have grown at a phenomenal pace over the last six years, and that growth is continuing even in the midst of a recession," said Gregg Kaplan, who led Oakbrook Terrace, Ill.-based Redbox Automated Retail from its inception until April, when he became chief operating officer of its parent company, Bellevue, Wash.-based Coinstar Inc. "We're not seeing anything that's slowing it down."
Coinstar, which owns Redbox as well as the smaller DVDXpress found at such places as Bi-Lo, saw DVD revenues in its first quarter of $154.7 million, a 156 percent increase over the prior year's same quarter, Goodrich said.
"The success isn't recession-driven, but it has raised the tone of success," he said. "When the recession ends, Redbox will still be very popular."
Goodrich downplayed concerns that the company might be growing too fast, saying market studies show just 20 percent of the population is aware of the brand.
"There is great potential for growth," he said.
'Increase our presence'
Not to be outdone, Dallas-based Blockbuster, which normally charges about $4 per movie rental in its 4,000 U.S. stores, starting rolling out its own DVD-vending machines recently and has 50 kiosks in its home base and Oklahoma City with plans to add 3,000 more elsewhere by year's end.
"We hope to significantly increase our presence," Blockbuster company spokesman Randy Hargrove said.
Where those new 3,000 DVD Blockbuster Express units will be still is up in the air.
"We are working with NCR to deploy the vending machines," Hargrove said.
He hopes to put them at convenience stores, supermarkets and drugstores, but they won't be sitting beside Redbox machines.
"You will not see competing vending machines at the same location," he said. "Given the projected growth, there are opportunities to put them in different locations (from Redbox)."
The pricing might be different, too. "It could vary with market demand, but it will be competitive with what's in the marketplace," Hargrove said.
Hargrove doesn't see Blockbuster's DVD move as playing catch-up to Redbox. He views the DVD kiosks with more unit capacity than competitors' machines and the likelihood of additional features such as DVD and video game sales as another outlet to the company's mortar-and-brick buildings.
Kiosks by the numbers
* Cumulative totals
Like Redbox rentals, Blockbuster Express DVDs can be returned to any Blockbuster kiosk. Movies rented at the Blockbuster store still will have to be returned to that specific brick-and-mortar location.
Blockbuster is taking the threat from Redbox seriously and has developed a three-pronged approach, he said. It hopes to enhance its core rental business through the new kiosks, grow retail sales in stores and embrace new forms of digital delivery.
Even Netflix's DVD-by-mail service has taken note of Redbox's challenge.
Netflix's cheapest mail-order plan costs $5 for two movie rentals in a month, and it grew at a much slower pace than Redbox, with first-quarter revenue rising 21 percent to $394 million.
"By the end of the year, kiosks likely will be our No. 1 competitor," Netflix CEO Reed Hastings said. "There are already more kiosks in America than video stores."
The discount DVD-rental business worries Hollywood studios because they fear it is undercutting DVD sales, which dropped 13 percent in the fourth quarter and were projected to fall at least an additional 6 percent in the first quarter, according to analysts.
In recent years, DVD sales have been the means for studios to earn a profit on movies because ticket sales are barely enough to offset production and marketing costs. Some studios think consumers will forgo buying DVDs if they have a cheap rental option.
"You could make a bit of an argument that rental is cannibalizing (DVD purchases), especially in a recession year, where everyone is watching their nickels," said Tom Adams, a video-industry analyst.
In the early part of the decade, when DVD sales were booming, Hollywood paid little attention to Redbox. The company was owned by fast-food giant McDonald's Corp., which saw in the fragmented vending-machine industry an opportunity to bring the consolidation and conformity it brought to burgers, fries and shakes.
Market testing by McDonald's in 2004 showed that consumers were willing to use the vending machines as a cheap and quick alternative to the video store. The kiosks caught on, especially in supermarkets.
The consistent flow of customers and the convenience of renting a movie while shopping to fill the cupboards proved advantageous. By the end of 2005, Redbox reported that it was renting more than a million DVDs a month out of 1,200 locations.
"It's a regularity of traffic, and the biggest single place people are going after the supermarket is to their homes," Redbox's Kaplan said. "Consumers tend not to rent DVDs when they're not going home."
McDonald's ultimately sold Redbox to Coinstar Inc., an operator of coin-counting machines, coin-operated games and kiddie rides.
Coinstar's strong relationships with supermarket operators soon had the Redbox kiosks springing up in chains such as Albertsons, Walgreens and even Wal-Mart, which accounts for 40 percent of DVD sales.
Video-industry analyst Adams estimates that the kiosk rental market, which totaled $519 million last year, will reach $1.4 billion in five years, or about one-fourth of Blockbuster's 2008 revenue.
"You could view that as directly competitive" with Blockbuster, Adams said. "It's a cheaper option, and during a recession, people embrace it."
COMMENTARY: What goes around, comes around. I can remember when many thousands of small, independently owned video rental stores went out of business after Blockbuster came on the scene. Blockbuster was the darling of Wall Street and just could not be stopped. They became the 800-LB Gorilla, and everybody had to go to them to rent a video.
Fast forward to June 2009, and RedBox appears to have distribution channels locked in. 15,000 red boxes in major grocery chains throughout the U.S. What a fantastic idea, incredible strategy. People go grocery shopping just about every day or at least two or three times a week. The convenience of renting a DVD for ONE BUCK after checking their groceries is just too inviting to turn down.
I am glad that Blockbuster is finally taking it in the rear. NetFlix is also feeling the pain. I love those red KIOSKS. Thank you RedBox. And cheap too!!
Courtesy of an article dated June 29, 2009 appearing in The Post and Courier