Dialogue: Inside the Redbox


DVD rental kiosks grows despite hurdles in storefront business

Redbox is determined to become a household name. Judging from its growth, it could well succeed. Redbox is the biggest of several companies that rents DVDs for $1 a day from kiosks in stores and restaurants nationwide. Redbox, owned by McDonald's Ventures, Coinstar and smaller investors, launched six years ago in just 12 locations. Today, the company employs 300 people, and in November it installed its 6,000th kiosk, which gives Redbox more U.S. locations than Blockbuster. Redbox CEO Gregg Kaplan recently spoke with The Hollywood Reporter West Coast business editor Paul Bond.

The Hollywood Reporter: How many movies does a single kiosk hold and how often do you change the titles offered?
Gregg Kaplan: Each kiosk holds more than 500 DVDs, representing 100-150 new release titles. New titles are available every Tuesday. We have an extensive network of local employees that service each machine weekly.

THR: Are all your kiosks owned and operated by Redbox, or are some of them franchises?
Kaplan: All kiosks are operated and maintained by Redbox directly.

THR: Does Redbox share revenue with the stores and restaurants that house the kiosks?
Kaplan: I can't disclose exact agreement details, but the majority of the agreements are based on revenue-sharing arrangements.

THR: Is there any brand loyalty out there? Do customers care whether they rent from Redbox or your competitors, like DVDPlay, TNR or Blockbuster Express?
Kaplan: Our combination of features -- $1 per night price point, new release titles, rent and return anywhere policy, prepaid online reservations -- is unmatched in the industry.

THR: Is this a business with substantial barriers to entry, or can anybody stick a kiosk anywhere and become a Redbox competitor?
Kaplan: Redbox has over four years of planning, consumer testing, refinement and actual operations, and executes extraordinarily well. (Our job includes) designing and deploying a user-friendly kiosk and related software, distributing millions of new-release DVDs to these kiosks each week, and maintaining the kiosks so that they are always up and running.

THR: How often does a kiosk run out of movies to rent?
Kaplan: Our online reservation feature ensures customers that the title they'd like to see is in stock and waiting for them. Our customers can visit www.redbox.com and check the inventory of DVD titles in specific locations nationwide. We have found that the biggest frustration in the DVD rental business is showing up at the rental location only to find that the title you want is out of stock.

THR: How much money does the average kiosk take in each day?
Kaplan: I can't disclose any sales figures, but I can tell you that Redbox has rented DVDs to millions of customers nationwide, and thousands more try the service every day.

THR: Do you have plans to get into the DVD burning business, so customers can burn just about any title at one of your kiosks?
Kaplan: Our focus is new release DVD rentals. Customers can rent a DVD in less than 60 seconds using the touchscreen and return the DVD to any Redbox nationwide.

THR: There are about 10,000 kiosks out there now, including your 6,000. How big can this industry get?
Kaplan: The home video market is expected to reach $42 billion by 2014, and the DVD self-service kiosk market segment shows growth potential in excess of $3 billion by 2009.

THR: Is the store model, where Blockbuster dominates, in trouble from your business model?
Kaplan: While other home entertainment providers are closing doors and even filing for bankruptcy, we continue to expand.

THR: Does VOD threaten your industry?
Kaplan: VOD pricing is not competitive with our dollar-per-night price point.

THR: Isn't the movie rental business quite a departure for a restaurant chain like McDonald's?
Kaplan: The quick, self-service transaction and rent-and-return anywhere policy make it a perfect compliment to McDonald's restaurants as well as grocery locations. We're available in locations that consumers are visiting anyway, saving them a stop in their day.

THR: Who builds the kiosks?
Kaplan: In April 2005, we named Solectron Corp. the exclusive worldwide manufacturer of Redbox DVD rental kiosks.