Red Box Analysis

During the year 2004, a company decided to enter the movie distribution industry and trying to get its slice of the market share. This company decided to deliver quick, convenient DVD rentals through kiosk vending machines. This company is Redbox. Through Redbox anyone can walk up to a machine and select any movie they want to rent, then swipe your debit or credit card, watch your movie and then return it to any Redbox location. Redbox rents these DVD’s for $1 a day. Or you can get a Blu-Ray copy for $1.50. You can also purchase older DVD’s that have been used through the Redbox system for only $7. Redbox is starting to offer video games but its selection is limited. Redbox is in good financial standing with 2010 March revenues of $263.1 million and total assets of $482.6 million.

In Redbox’s industry its main competitors are Netflix, who are an online streaming movie and television company who also mail DVD’s to your home address. The other main competitor is Blockbuster, which is struggling but looking for a comeback with online streaming, at home mailing, and vending kiosks similar to Redbox. Some other companies that interfere with Redbox are Hulu, Youtube, Video On Demand, Apple iTunes and also online illegal pirating. The main Issue of this case is to help Redbox grow in the industry with a better strategy.

Looking into the overview of Redbox shows that it is completely owned by a subsidiary company named Coinstar Inc. When Redbox first started in 2004 however, it was funded by McDonalds ventures, which was a subsidy of McDonalds. In 2005 Coinstar purchased 47.3% of the ownership. It then bumped up ownership to 51% in 2008 with a $5.1 million purchase and then in 2009 is purchased complete ownership of Redbox, for an estimated $162 million. At this time Redbox currently had about 12,000 kiosks and plans to add between 6,000 and 8,000 by the end of 2009. According to www.redbox.com they currently have 31,500 locations nationwide. They also offer an app for smart phones that lets you reserve and search where certain movies are relative to your current location. You can also do this through there website.

Previous to Redbox, Coinstar Inc. acquired DVDXpress, another DVD renting vending kiosk system, in 2007. Before DVDXpress, Coinstar made its name in vending machines that offered the exchange of money and coin counting. The operated these machines in supermarkets, banks, and convenient stores across the country. With these services of unmanned kiosks where convenient transactions could take place, Coinstar Inc. decided to movie these services into DVD rentals.

There were 5 reasons as to why Coinstar Inc wanted to have full ownership of Redbox. First off, revenue growth was attractive to Redbox’s vending machines. Secondly, the return on the investment was high for Coinstar. Next, most customers gave strong positive feedback. Also in some locations Redbox could grow to have 20% of the DVD renting