Redbox

Redbox Automated Retail, LLC
Subsidiary
Industry Retail/DVD rental
Founded 2002 (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

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

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

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

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

References

  1. ↑ "Company Overview of Redbox Automated Retail, LLC". Bloomberg.com. Retrieved February 9, 2017.
  2. ↑ "Redbox Careers". Redbox.com. Retrieved August 1, 2013.
  3. ↑ "Coinstar, Inc. 2013 First Quarter Earnings". April 25, 2013. Retrieved Aug 1, 2013.
  4. ↑ "Coinstar Inc. :: Brands :: Redbox". Retrieved 22 May 2013.
  5. ↑ Pomerantz, Dorothy (6 March 2009). "Red Menace".
  6. 1 2 Heath, Chip; Heath, Dan (26 March 2013). "Decisive: How to Make Better Choices in Life and Work". Random House of Canada. p. 192 – via Google Books.
  7. ↑ Ulin, Jeff (15 October 2013). "The Business of Media Distribution: Monetizing Film, TV and Video Content in an Online World". CRC Press. p. 256 – via Google Books.
  8. ↑ Parnell, John A. (15 January 2013). "Strategic Management". SAGE. p. 542 – via Google Books.
  9. ↑ Hahn, Jim (13 May 2013). "The Best 100 Free Apps for Libraries". Scarecrow Press. p. 153 – via Google Books.
  10. 1 2 "COINSTAR INC - 10-Q - 20080807 - NOTES_TO_FINANCIAL_STATEMENT". Google.brand.edgar-online.com. 2008-06-30. Retrieved 2011-12-12.
  11. ↑ Keating, Gina (11 October 2012). "Netflixed: The Epic Battle for America's Eyeballs". Penguin. p. 163 – via Google Books.
  12. ↑ "Redbox Gets Bought: Another Success For Good Service At A Good Price". Techdirt.
  13. ↑ Dixon, Wheeler Winston (19 April 2013). "Streaming: Movies, Media, and Instant Access". University Press of Kentucky. p. 56 – via Google Books.
  14. ↑ "Redbox surpasses Blockbuster in number of U.S. locations". Kioskmarketplace.com, November 26, 2007.
  15. ↑ "Redbox surpasses 100 million DVD rentals Redbox surpasses Blockbuster in number of U.S. locations". Kioskmarketplace.com, February 2008.
  16. ↑ "Redbox Hits One Billionth Rental". Gigaom.com, September 6, 2010.
  17. ↑ "Info | Redbox Corporate Information". Redbox. Retrieved 2011-12-12.
  18. ↑ Ellingson, Annlee (26 July 2013). "Redbox controls 50% disc-rental share". L.A. Biz.
  19. ↑ "Six Questions: Redbox's Mitch Lowe". Home Media Magazine. July 31, 2009. Retrieved September 7, 2009.
  20. 1 2 3 4 5 Barnes, Brooks (September 6, 2009). "Movie Studios See a Threat in Growth of Redbox". The New York Times.
  21. ↑ "Redbox launches Blu-ray rentals". Redbox.com. July 29, 2010.
  22. ↑ "Redbox launches program for video game rentals". USA Today. June 17, 2011.
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  25. ↑ "Redbox Completes Blockbuster Express Purchase". CSNews. June 27, 2012. Retrieved June 28, 2012.
  26. ↑ "Redbox bringing DVD vending machines to Canada". The Globe and Mail. Toronto. February 8, 2012.
  27. ↑ "Redbox Will Be Leaving Canada". Redbox.ca. Archived from the original on February 7, 2015. Retrieved 7 February 2015.
  28. ↑ "Redbox Founder Gregg Kaplan Exits Coinstar; Anne Saunders Named Prexy". The Vending Times. August 25, 2012. Retrieved August 26, 2012.
  29. ↑ "Three Cheers! America Rents 3 Billionth Redbox Disc". Wall Street Journal. July 30, 2013. Archived from the original on August 4, 2013. Retrieved February 9, 2017.
  30. ↑ "JANA Partners Goes Activist on Outerwall (OUTR)". MarketFolly.com. Retrieved October 7, 2013.
  31. ↑ Sandholm, Drew (October 10, 2013). "Hedge funder says sale is possible for this name". CNBC.com. Retrieved December 10, 2013.
  32. ↑ Spangler, Todd (December 10, 2013). "Redbox Chief Saunders Out, Outerwall to Cut 8.5% of Workforce". Variety. Retrieved December 10, 2013.
  33. ↑ "Redbox: number of kiosk rentals 2015 - Statistic". Statista.
  34. ↑ "Redbox DVD rental company shutting down in Canada, moving 1,400 kiosks to U.S.".
  35. ↑ Lang, Brent (5 June 2014). "Redbox Makes Up Half of DVD Rental Market, Exec Says".
  36. ↑ "Redbox 101". Retrieved 15 July 2016.
  37. ↑ Levy, Nat (September 28, 2016). "CEO of Redbox and Coinstar maker Outerwall out as businesses split into separate enterprises following acquisition". Geekwire.com. Retrieved October 24, 2016.
  38. ↑ "Redbox Is Not Pulling Kiosks From NYC Locations". Loc8Nearme.com. January 27, 2017.
  39. ↑ "Is Redbox Removing Its Kiosks, Or Just Moving Them?". 3 January 2017.
  40. ↑ Johnston, Casey. "Redbox and Verizon's Netflix competitor goes into alpha test". Ars Technica.
  41. ↑ Hokenson, Christian (March 19, 2013). "Redbox Instant Streaming Available To Public". HD Report. Retrieved February 9, 2017.
  42. ↑ Sawers, Paul (December 12, 2012). "Redbox Instant by Verizon launches its $8/month Netflix rival this month, with 4 majors on board".
  43. 1 2 Roettgers, Janko. "Why the writing may be on the wall for Redbox Instant". Gigaom. Retrieved 6 October 2014.
  44. ↑ Janko Roettgers, Gigaom. "Redbox Instant is shutting down October 7." October 4, 2014. Retrieved March 20, 2017.
  45. ↑ Wagner, Holly J. (May 2, 2005). "McDonald’s Orders More McDVD". Home Media Magazine.
  46. ↑ "Redbox names Solectron worldwide manufacturer of DVD kiosks". EMSNOW.com. April 28, 2005.
  47. ↑ "Company Overview of GetAMovie, Inc.". Businessweek.com. Bloomberg. Retrieved 3 April 2014.
  48. ↑ "Franz Kuehnrich, Bartlett US". faqs.org. Advameg. Retrieved 3 April 2014.
  49. ↑ "Flextronics and Redbox in Successful Partnership to Build DVD Rental Kiosks" (PDF). popai.com. POPAI. Retrieved 3 April 2014.
  50. ↑ Biju Kulathakal Co-Founder of Redbox - Part 1. 16 June 2011 – via YouTube.
  51. ↑ "Biju Kulathakal". Forbes.com. Forbes. Retrieved 1 February 2015.
  52. ↑ "SSKA's official show wraps up in Orlando". Kiosks.org. February 20, 2006.
  53. ↑ "Is Redbox friend or foe what to know if you invest in movie industry stocks". paliresearch.com. (Registration required (help)).
  54. ↑ Yackey, Bill (August 20, 2007). "Rise of redbox. Some kiosks are located outside store location in parking areas.". Selfserviceworld.com.
  55. ↑ "DVD kiosks like Redbox have rivals seeing red - USATODAY.com". usatoday30.usatoday.com.
  56. ↑ Greenfield, Richard (August 18, 2009). "Redbox's Lawsuit Now Stands On Only One Shaky Leg as Court Dismisses First Sale Complaint". Pali Research. (Registration required (help)).
  57. ↑ "Analyst: Dismissal of Redbox Claims Could Undermine Kiosk Viability." Home Media Magazine, Erik Gruenwedel, October 5, 2009.
  58. ↑ "Redbox Files Lawsuit Against Universal." Redbox Press Release, October 13, 2008
  59. ↑ "Redbox sues 20th Century Fox over DVD rentals." Reuters, Tom Hals and Sue Zeidler, August 12, 2009.
  60. ↑ Pearson, Sophia; Milford, Phil (August 19, 2009). "Coinstar’s Redbox Sues Warner Unit Over Video Terms". Bloomberg News.
  61. ↑ Tribbey, Chris (August 17, 2009). "Judge Throws Out Some Redbox Claims in Universal Suit". Home Media Magazine.
  62. ↑ Gruenwedel, Erik (October 1, 2009). "Fox Says Redbox Lawsuit is Flawed". Home Media Magazine.
  63. 1 2 Gruenwedel, Erik (October 2, 2009). "Warner Also Seeks Redbox Lawsuit Dismissal". Home Media Magazine.
  64. ↑ Lowe, Mitch (October 2, 2009). "Redbox Chief: 'We Are an Engine for Industry Growth'". TheWrap.com.
  65. ↑ "Warner Bros. Home Entertainment and Redbox Announce a Multi-year Distribution Agreement" (Press release). Redbox, Warner Bros. Home Entertainment. February 16, 2010. Retrieved May 23, 2010.
  66. ↑ "Universal Studios Home Entertainment and Redbox Forge Distribution Agreement" (Press release). Redbox, Universal Studios Home Entertainment. April 22, 2010. Retrieved May 23, 2010.
  67. ↑ "Twentieth Century Fox and redbox Announce Distribution Agreement" (Press release). Redbox, Twentieth Century Fox Home Entertainment. April 23, 2010. Retrieved May 23, 2010.
  68. ↑ "BRIEF-Redbox, Paramount announce new distribution agreement". 19 January 2017 – via Reuters.
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