Redbox looking into digital distribution

Redbox, the number one DVD rental kiosk service in the United States, is mulling over additional service options ranging from digital video distribution to expanding its DVD catalog.

Specifically, Redbox is looking to expand digital distribution via SD cards, portable media, USB flash drives, and other consumer-driven options.

I think it only makes sense for Redbox to adopt some newer distribution models, despite the company’s high success with DVD’s alone.  These days, Redbox has almost 17% of the DVD rental market and has rented upwards of 1 million DVD’s per day. Its 2009 revenue increased 50% from the previous year, up to $1.1 billion.

redbox

Thus far, Redbox has hesitated to alter its current business model — including expanding the capabilities of its rental kiosks — but I think it would be foolish to let Blockbuster and competing services roll out additional distribution models first.

The company will also continue to negotiate with movie studios, as Sony, Lionsgate and others have locked into specialized DVD distribution deals with Redbox

On the other hand, Redbox still faces problems with some distributors, movie studios and retailers. Target and Walmart are now limiting new release DVD purchases to 5 copies maximum for the first 28 days of release, which the retailers believe will help them sell more movies.  This is all due to Hollywood’s fear of rental kiosks hurting DVD sales.

“We believe a direct digital relationship with at least three studios (Fox/Universal/Warner) will be impossible until Redbox agrees to a window for its DVD rental business,” said Richard Greenfield, Pali Capital analyst, in an investor note.  “While Redbox can survive with low inventory of DVDs via workarounds, in a digital world low-inventory goes to ‘no inventory.'”

Blockbuster, which has continued to close stores due to competition from rental kiosks, will soon offer a new DVD kiosk service that offers both USB drive and SD card support.