Tuesday, September 17, 2013

Redbox Not Meeting Expectations

Redbox has not been doing well.  The stock is dropping and earnings are down.  The CEO J. Scott Di Valerio "vows to cut the number of consumer promotions, reduce content and operating costs, and repurchase an additional $100M of (Parent Company) Outerwall shares in Q4."  But maybe the problem lies elsewhere. 

While Redbox is better known for its DVD rental business, it has a partnership with Verizon to build out its streaming business model, Redbox Instant.  The challenge is in such a fast paced industry, Netflix, Hulu, and Amazon have all been more aggressive in the streaming video business space, both with cutting distribution deals with strong content partners and more importantly, building a library of exclusive content.  That strategy, most notably seen with Netflix and their show, House of Cards, has earned them Emmy nominations.  It also has led to a huge demand to watch these shows, leading to a rise in subscription revenue.  Redbox Instant has yet to aggressively enter this space.

Certainly Netflix showed that it is possible to stumble through a transition from DVD to streaming media, but that it can also be achieved.  Redbox certainly has the ability to pull off a similar feat, keeping the DVD business afloat while building a valuable streaming subscription business.  Redbox's challenge is that their DVD rentals don't require a subscription to rent, just a credit card for single use viewing.  Getting those customers to convert to streaming will require a creative and innovative marketing effort.  I believe that it can be done.  Competition will only get more fierce and Redbox needs to make a real splash to attract attention.  I suggest an investment in a major content deal and the launch of a signature Redbox exclusive series.  Sure, Netflix, Amazon, and Hulu are all doing that too but the barriers of entry are low enough for Redbox to breakthrough if they are willing to commit. 

1 comment:

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