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Next Match: RedBox vs. NetFlix

Thursday, April 28th, 2011

Few years ago, we started off with a BlockBuster service to get DVDs by mail and also pick up a couple of in-store free rentals. I liked the in-store deal because I could rent newer movies which usually have a long wait for home delivery.

And then, NetFlix came, conquered BlockBuster with streaming movies and TV shows in addition to the mailed DVDs. They really nailed the deal for me when they streamed via my Wii console, for no additional charge. When the BlockBuster store around where we live closed, we gladly cut the cord from my BlockBuster and switched to NetFlix. Too bad, BlockBuster didn’t copy NetFlix’s strategies even if they couldn’t creatively compete. The rest of the market voted just as I did and blockbuster is limping its way to RIP.

After using NetFlix service for a while, we noticed we were streaming movies more frequently than we were watching the DVDs. Despite the lack of good selection and low-quality streaming video (on 56′ TV), we preferred to pick and chose to watch whatever and whenever we want. Laziness chimed in too, NetFlix DVDs would lie around our entertainment center for days before we got to it. Over time, I figured we weren’t watching more than two movies a month through mailed DVDs. Besides, NetFlix had same queuing issue when it comes to newer movies available for immediate shipping.

Redbox One Billion Movie Rentals!

Around this same time, we finally bought a Samsung Blu-Ray player. Not wanting to wait for NetFlix shipping, I tried renting over night Blu-Ray rentals from RedBox. Blu-ray is spectacular – if you haven’t tried it, run, not walk, to check it out soon, RedBox solved the one problem I had with both BlockBuster and NetFlix: instant access to newer movies. So the combination of RedBox + Blu-Ray, I was royally sold.

We have since discontinued NetFlix DVD mailing service, but staying with streaming, though its usage has gone down even while NetFlix is beefing up its digital catalog. I have written about NetFlix before and I continue to use them as lessons on strategic thinking.

First, RedBox is available in locations that are practically a shout away from where we live. This one idea in itself might be a big winner. It’s ironic that the fast-disappearing BlockBuster stores could have easily stayed to do this cheap, over-night rental thing! In any case, until the other guys can provide Blu-Ray quality streaming and newer movies, RedBox neighborhood kiosks will continue to be prosper. I won’t be surprised if other companies soon flood the market with Kiosk-based services. CoinStar, which owns RedBox, had long established strategic partnership with retail establishments that helped introduce this potentially golden-goose innovation.

Second, by virtue of overnight rental, RedBox is eliminating a typical lazy consumer behavior. At the risk of paying more, I am forced to watch the movies overnight and return them, opening up more revenue for RedBox from the same DVD. Not only that, I am now more inclined to rent (even more revenue!) another newer movie from RedBox sooner than later. What used to be BlockBuster and NetFlix’s proposition, “Keep the DVDs as long you want”, is now wasted asset which otherwise should be making money! So RedBox is re-defining the a strategy which NetFlix previously re-defined which BlockBuster had previously defined. May be RedBox didn’t do this consciously, but at least a good strategy is emerging. This is classic business strategy at work.

Third, RedBox is aggressive about promoting the newer movies, in spite of the studios forcing delay between the day home video is released and the day kiosk rental is available. Nothing beats the joy of watching a good new movie late at night in your own cozy family room, that too on blu-ray and 56′ wide-screen home theater. Add to that the magic number of a $1 rental ($1.50 for Blu-ray) – I think we have a wholesome deal as sweet as mass-market American deals are supposed to be.

While NetFlix and the dozen or so aggressive competitors are vying for the online streaming business, RedBox, in my opinion, is firing on all guns around American neighborhoods. Especially around communities where internet streaming may not as popular as urban centers.

And don’t forget an important, but somewhat subtle proposition: RedBox is silently gaining brand awareness through well-designed, well-placed kiosks across high-traffic locations. If the same spots were to go for advertising, I bet they cost a boat load. Just take Wal-Mart alone; Millions of Americans who walk in and out of Wal-Mart everyday bestow their eye balls on a RedBox kiosks. More and more of these by-standers will be tempted by the site of people queuing up in front of attractive kiosks. Within America, RedBox may soon be as recognizable as Wal-Mart or McDonald. In the marketing world, that awareness is priceless.

Blu-Ray quality streaming may come soon but the idea of renting discs will stay at least for another few years. That is a compelling reason for RedBox’s to keep a watchful eye on the streaming technology as well as consumer wants and behavior choices. If CoinStar can could keep up with both, I am certain they can become the smartest innovator in the self-service segment converging convenience, retail and entertainment.

Next Match: RedBox vs. NetFlix

PS: There is one competition that usually goes unmentioned: Local libraries. They rent free rentals (mostly DVDs, very few offer Blu-ray) but they have the same queueing problem as NetFlix, especially since library rentals are usually for a week. Perhaps, RedBox will soon hit the queueing issue as more folks start embracing it.