Redbox vs. Netflix: Does Redbox threaten Netflix?

Redbox vs. Netflix: Does Redbox threaten Netflix?

By Bakari Akil II, Ph.D.

Quick Answer – No!

Here’s why:

Chris Anderson in his book The Long Tail describes how a new economic model has emerged that allows independents, niche players and obscure artists participate in the mass media industry. Before, in brick and mortar stores and businesses that possessed a limited amount of ‘shelf space’ it was necessary to stock items that provided guaranteed sales.  Further, distribution models available from major mass media conglomerates limited the amount of exposure that artists could gain for their works.  Choosing the items that will do not only well, but extremely well is a science and risks or long shots are not given a chance in this world of retail.

However, the era of Web 2.0 has upended this economic model.  Cultural critics such as Andrew Keen and academics such as Henry Jenkins from the Comparative Media Studies Lab at MIT have discussed at length how new technological advances (read internet) have changed the way mass media operates. The proliferation of software, hardware and  ‘shareware’ programs that allow users to upload and create content without having the technical skill or economic resources has added new markets and choices for consumers. It has also worked well for artists with the technical experience and resources to create but do not have access to major media conglomerates’ distribution systems and publicity machines.

Redbox is based on the old model.

Netflix is based on the new economic model.

How So?

Redbox, although a novel idea and very convenient, is based upon the brick and mortar model of conducting business. They offer new releases  (up to 200) that are housed in a machine that can hold a limited amount of movies (700). You have to already be headed to one of the establishments (McDonalds, Walgreens, etc.) where they are located for it to be convenient.  Otherwise you have to walk, bike or drive to pick up a movie in the same way you would visit a video store. Although it is extremely cheap ($1 per night) in comparison to major DVD rental stores such as Blockbuster or minor ones like Video Warehouse it is still a similar experience.

In order to enjoy the Redbox experience, you have to be willing to watch new releases only and be willing to go to a McDonalds, Wal-Mart, grocery store, etc., to rent movies. It may be fast but it only guarantees the “hits” and with a limited amount of space, you may not be able to get the movies you want. Even with their online service that allows you to make a reservation, it is based upon availability in the Redbox you will be going to.

Netflix on the other hand is based upon the new economic model created by Web 2.0.  Users of the service have access to thousands of choices of DVDs.  Very little physical output is required to bring about results. All you have to do is peruse the website, place your order and wait for it to arrive at your mailbox.  There is no pressure to hurry up and choose because someone is standing behind you.

Netflix movie recommendation service also takes advantage of technological breakthroughs to help you with your movie choices. Netflix uses the “wisdom of crowds,” to borrow the title from James Surowiecki’s book, to make your movie experience better.  It takes the ratings you provide and processes those with users who provide similar ratings to figure out what you may also like.

If you use Netflix’s service often it can be as cheap as the Redbox experience and it allows you to get what you want without having to leave your home. Plus, it truly does not have a late fee as you can keep the DVDs as long as you need to and will never be charged unless you end your service and never return the DVDs. Redbox claims there are no late fees and states that if you do not return your rental by 9PM you will be charged the daily fee of $1 for renting it another night. That is a semantic argument.

The Clincher

But it’s the number of choices that keeps Redbox from being a threat to Netflix. Once again it is that “long tail” that Chris Anderson refers to that protects Netflix from brick and mortar innovations such as Redbox.

Netflix offers the ‘New Releases’ as well as the less new, independent, foreign, classic, documentary, instructional, sports related, quirky and in some cases bad films people want to see. They handle the market that Redbox doesn’t want or can’t address due to space concerns. Yes, Netflix has physical locations it operates from, but a lot of their inventory can be stored online and not necessarily on DVD disks. Plus you can watch thousands of movies and other shows online through Netflix’s service.

Netflix can profit from the traditional base that Redbox profits from and from the non-traditional base.  I believe Netflix is safe from offline threats; it is online innovation that they need to be concerned with.

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7 responses to “Redbox vs. Netflix: Does Redbox threaten Netflix?

  1. hello,

    Thank you for the great quality of your blog, each time i come here, i’m amazed.

    black hattitude.

  2. Redbox has a smaller video library than Netflix and for the moment they don’t offer the service on devices such as gaming consoles or set top boxes. This is another article about Redbox streaming service they plan to launch if the survey turns positive: http://www.thehdstandard.com/streaming-technology/redbox-to-compete-netflix-online-streaming/

    Catalin
    Professional Streaming Consultant

  3. That is very important indeed. It is the people who do not take advantage of that who are the ones who normally do not succeed. If you stick with it and learn the ways, this industry can earn you a lot of money!! Good article, nice work .

    ~Sara~
    (G.O.R)

  4. As long as there are a sufficiently large segment of people who won’t shop online, Redbox can succeed. That said, the trends seem to point to a gradual reduction in Redbox’s target market for the foreseeable future. How long they can hold on to a large enough segment remains to be seen. I guess a telltale sign will be when the number of kiosks starts to retract.

  5. …and by “telltale sign”, I meant that will indicate that Redbox has reached it peak of growth potential using it’s current model. I assume that the number of kiosks can reduce quite a bit before the company goes out of business.

  6. Until 40-60% of the market has a Streaming Available TV, or a TV they can shoot/beam/USB 2.0, their laptop/tablet screen onto The Redbox market will still be around. For budget reasons, 1 dollar when I want to, not 9 bucks even if I dont, For Typical user reasons, I dont need to own a DVD, I dont have subscriber tv (HBO,Showtime, ect) , and I still want to see a movie and 75% of moms are at a grocery store 2 days a week, so it is not an inconvience.

    Is Redbox going to kill Netflix, NO. Will Redbox fail in the medium term (3-5 years), No, but they will see an decreased revenue. But the 24-48 Inch TV market will never die. I love movies but they are lame if I have to watch them on my 14” Laptop or 6-10” Tablet/Smart Phone. Until Streaming TV is fast enough to not have a buffer time (aka the Network can keep up) and everyone has a Streaming available TV (and it’s cost doesnt hinder). I can see a day where people buy movies, keep them in their cloud, or on 3TB hard-drive connected to TV, and can acess them at any point. But that is where AppleTV , is ahead of its time, but also the lower demographic that only has less than $50 dollars to spend on entertainment a month WILL NEVER leave Redbox because it’s the cheapest and dont pay for Wifi/Subriber Fee. A $100 tv and a $20dvd player will last 3-8 years and just a year of Wifi/Netflix could run you $400 a year (depending on speed).

    I think Netflix is safe, unless Apple, Amazon, and others take shots at their subscriber base. But I think Redbox is safer, people RAN away from Friendster to Myspace, then Myspace to Facebook. This Gen Y isn’t loyal. But the Poor Folks are slow to change and will always go with the cheaper alternative with a lower initial investment.

  7. I’m in agreement with food4thought. I left Netflix for Redbox because I would rather pay $1 for a movie rental when I want to watch one, than feel pressured into watching more movies so I could “get my money’s worth” for what I was paying for my monthly Netflix subscription. My decision to watch a particular movie is often “spur-of-the-moment” as well, so with Redbox I don’t have to decide ahead of time and wait for it to come in the mail. If Redbox doesn’t have a movie I want to watch, I am often able to stream it for free from Amazon’s growing “Instant Video” database as an Amazon Prime member… that is, until Redbox decides to offer a streaming video service too (let’s hope)! Besides, I would rather watch TV shows than movies on a regular basis, so I get more satisfaction from my HuluPlus subscription (which is cheaper than Netflix, and way cheaper than cable TV – and I can watch shows when I want, not when the TV network says I have to watch them). I see pros and cons with all the different technologies, and I think each person must decide what works best for them. Redbox may be based on the old “brick and mortar” retail philosophy, but I don’t think they are going away anytime soon. Technology is always changing though. Someone else will eventually come up with the next new thing that is “better than sliced bread” and probably put all the existing platforms out of business. Just some more food for thought!

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