Inside The Red Blue $1 DVD Battle

There’s a new red versus blue battle in the United States, and it’s not what you think.

In the red corner, we have Coinstar Inc. and its Redbox $1 DVD rental kiosk.  In the blue corner, we have NCR, with licensed brand Blockbluster Express, and its own $1 DVD  kiosk.  And in the courtroom, we have the movie studio lawyers, fighting against the $1 price points.

Blockbuster Express DVD Kiosk

Redbox DVD Kiosk

The DVD rental kiosk history is surprising.  The Redbox concept first began in 2002 with McDonald’s Ventures, LLC, which was exploring “new ways to drive traffic to McDonald’s and provide added convenience and relevance to customers.”  Their first test was 2004 in Denver area McDonald’s restaurants.  Coinstar took a minority investment in late 2005, which made Redbox a separate company from McDonald’s, and then bought the rest of the company in early 2009.  Redbox says it now has more than 17,500 locations with each kiosk holding approximately 500 movies, including up to 200 new releases.  The selection is updated every Tuesday.

Blockbuster and NCR announced a strategic partnership in August 2008 that has resulted in Blockbuster Express kiosks being located in supermarkets and high-traffic retail locations.  The newest placement is 200 Duane Reed stores in New York City.  The NCR kiosk holds more than 900 DVDs, per the company.  NCR, which is playing catch-up to Redbox, will end the year with about 2,500 kiosks, according to The Wall Street Journal.

NCR is playing all the angles in this evolving battle.  In the summer of 2008 NCR became a minority investor in and kiosk supplier to TNR Entertainment Corporation, who was at the time the “second-largest operator of movie rental kiosks in North America, under The New Release and MovieCube brands.”  Then in April 2009, NCR bought the remaining TNR equity as part of its plan to extend the Blockbuster Express brand.

Update December 10, 2009.  NCR is at it again.  The company just acquired DVD kiosk operator DVDPlay Inc. and it’s 1,300 kiosks, which will be converted to the Blockbuster Express brand.  NCR also gains access to the California market, where Redbox is weak.

It’s too soon to know the lessons learned, but there are a number of strategic and tactical aspects to consider:

  • Commodity Product Battle.  Each operator sells the identical product, which comes in two basic versions (standard- definition and high-definition or Blu-Ray DVD), although importantly the $1 kiosk rentals are in standard definition;
  • Multiple Distribution Channels.  The user experience for shopping/viewing differs depending on the channel:  theatre, retail rental store, cable on demand/satellite on demand, stand-alone kiosk, mail, and emerging Internet availability for computers and DVD player downloads;
  • Restricted Product Availability.  The studios and movie distributors control timing and availability, which is a key go-to-market variable;
  • Pricing is a 2-way Differentiator.  First, by quality of the product ($1 standard definition in the kiosk, higher price point in the retail store, $3.99 standard definition/$5.99 high definition on Comcast On-Demand); and second by convenience (ultimate convenience is choosing a movie from your couch, cascading down to multi-tasking convenience – get your movie while doing your grocery shopping, all the way to separate destination shopping at the rental store.

There’s an ongoing battle for content in the entertainment industry.  It’s unclear what the ultimate service model will be to deliver content to users in and away from home.  It may be a combination of models.  The critical importance of content access and content delivery, and their potential linkage, is at the heart of the Comcast decision to buy NBC Universal in a vertical integration move.  The end-game questions are whether the content providers or deliverers will be king, and whether providers and deliverers will work together to create and sustain a profitable business model.  What we do know is that consumers want lots of content, delivered in their preferred form and on their own timetable.  Those who can best figure out this challenging opportunity will be the winners.

Headline

TBD.  This battle hasn’t played out.  But, in the meantime, there are plenty of  marketing and business implications to ponder.  Think, learn and apply to your situation.

Harvey Chimoff is a hands-on marketing leader and business-wide collaborator who builds marketing capabilities in B2B/B2C organizations that drive customer success.

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2 thoughts on “Inside The Red Blue $1 DVD Battle

  1. This isn’t really anything new. The battle is really pretty simple:

    – Instant gratification and absolute convenience , at the highest prices, with the “on-demand” models offered by Comcast, Verizon and other “cable” type providers

    VS.

    – Rentals for a fairly value conscious flat flee and more convenient “return when you want” model of Netflix

    VS.

    – Very cheap rentals that need to be returned the next day or pay a late fee.

    To me, it is niche marketing based on price point and these options are all available for the same reason you can get a $1 burger or a $4 burger or something in between at McDonald’s.

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  2. Interesting that Blockbuster’s share price reached a high of $30 in 2002 and is now worth 70 cents. Disruptive technology can wreck havoc with a business model – and no brand can survive that. I wonder how this could have played out if they had seen the writing on the wall in ’02 and self cannabilised more aggressively.

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