Rental vs. Streaming – The Redbox Netflix Grudge Match

6Aug/090

Rental vs. Streaming – The Redbox Netflix Grudge Match

The always-provocative Mark Cuban has a good post about why the Hollywood movie studios love them some Redbox, the company that puts kiosks in grocery stores and gas stations with DVD to rent for $1.

Riddle me this, Batman. If Redbox can offer DVD rentals from Kiosks for $1 per movie, then why can’t online download services offer movies for overnight rental for the same $1?

The answer isn't quite so obvious. Redbox does two things very well.

First, they offer consumers an incredibly easy way to rent the most popular movies. They are the path of least resistance for movie consumption for many. You run by your 7-11, grocery store, whatever. There are the movies and they are only a dollar. Easy and breezy. You watch your movie on your TV.

Second, they do something for the movie industry that for the most part only Netflix also does. They pay minimum guarantees with no returns. In other words, a movie distributor can take an order from Redbox for say 500k units at $10 a DVD, with no returns and no resale of the DVD into the aftermarket. Redbox will actually destroy the DVDs. That's a quick and easy $5,000,000 in hassle free revenue. With the emphasis on hassle free. From the studio perspective, thats $5mm in net margin that doesn’t require the overhead and actual costs of distribution and returns, along with the opportunity to spend less on marketing and advertising to promote the title. Redbox takes care of all of that.

--The Ultimate Movie Paradox - RedBox vs Downloads « blog maverick

Meanwhile, there are rumors that Netflix has been trying to make an app that will stream movies to the iPhone. David Lynch is not in favor of this, but I am. Even Lynch may have to change his tune if the rumored Apple tablet provides a fine streaming movie experience.

It looks like there's room for both Redbox and Netflix's models, but only one has room to grow. No matter how much the studios lean on the scales. DVD is dying. Digital - either streaming or download - is the future.