Redbox

History

Redbox Automated Retail LLC was initially funded by McDonald's Corporation. In 2002, the company placed four automated convenience store kiosks that sold grocery items such as milk, eggs, and sandwiches as well as 11 DVD-rental kiosks in Washington Metropolitan Area locations. Redbox withdrew the grocery kiosks within a year, but the DVD-rental kiosks succeeded, and the company changed its focus to that market. In 2005, Coinstar bought 47 percent of the company for $32 million. In early 2008, Coinstar exercised an option to increase its share from 47% to 51%. In February 2009, Coinstar paid McDonald’s and other shareholders between $169 and $176 million for the remainder of the company.

The company surpassed Blockbuster in 2007 in number of U.S. locations, passed 100 million rentals in February 2008, and passed 1 billion rentals in September 2010. Competitors include Netflix and Blockbuster. In Q2 2011, kiosks accounted for 36 percent of the disc rental market, with 38 percent of that attributable to rent-by-mail services and 25 percent to traditional stores, according to the NPD Group. As of Q2 2011, 68 percent of the U.S. population lived within a five-minute drive of a Redbox kiosk. The numbers for Q2 2013 shows that the Redbox rentals had surpassed 50 percent of the total disc rentals in the country.

Mitch Lowe joined Redbox in 2003 after spending five years as a cofounder of Netflix. At Redbox, he started first as a consultant and then as VP of Purchasing & Operations. In 2005, he became the Chief Operating Officer of Redbox. Lowe had experimented in 1982 with a short-lived VHS movie vending company named Video Droid. Lowe was named President of Redbox in April 2009.

In July 2010, Redbox announced that they were beginning to rent Blu-ray movies at 13,000 kiosks nationwide, and Blu-ray Discs were available across the Redbox network by the fall of 2010. In October 2010, the company began testing video game rentals in Reno, Nevada; Orlando, Florida; Stevens Point, Wisconsin; Austin, Texas; Wilmington, North Carolina; and Corvallis, Oregon. In June 2011, Redbox launched video game rentals nationwide. Games for all major platforms are offered, including Wii, PlayStation 3, and Xbox 360.

In February 2012, Redbox announced the purchase of former competitor Blockbuster Express (NCR) for $100 million. The acquisition included over 10,000 DVD kiosks, certain retailer contracts, and DVD inventory. As part of the agreement, Redbox entered a supplier arrangement of purchasing product and services from NCR. On June 27, 2012, Redbox sent an email to its customers announcing that it had completed the purchase of Blockbuster Express on June 23.

The company announced in February 2012 the deployment of kiosks in Canada to test the market in that country, but in early 2015 shut down their Canadian operation, citing low demand.

In 2012, Redbox's founder, Gregg Kaplan, exited Coinstar as president and COO of Redbox. Anne Saunders became the new president of Redbox.

In July 2013, Redbox announced its 3 billionth rental of a disc, counting both movies and games.

On October 7, 2013, Barry Rosenstein's hedge fund JANA Partners filed a 13D on shares of Outerwall (OUTR) and has disclosed a new 13.5% ownership stake in OUTR with 3,777,995 shares. The activist 13D filing includes that JANA expects to talk with management. In particular, they want to focus on "a review of strategic alternatives including exploring a strategic transaction, selling or discontinuing certain businesses, or pursuing a sale." Rosenstein told "Closing Bell", about Redbox, the company is "gushing with cash". On December 9, 2013, Outerwall cut 8.5% of workforce.

Redbox now offers Xbox One and PlayStation 4 games.

Throughout most of 2016, former parent company Outerwall was seeking a buyer based on shareholder input. In early September, Outerwall was sold to Apollo Global Management and its three units (Coinstar, ecoATM and redbox) were split into individual companies. In late September 2016, Outerwall CFO Galen Smith was announced as the new CEO of Redbox.

Redbox Instant

Redbox began internally testing a video streaming service, dubbed Redbox Instant, in July 2012. The service is a joint effort between Redbox and Verizon. On March 14, 2013 Redbox Instant by Verizon officially went public, offering customers a free 1-month trial of an $8/month unlimited streaming service that includes 4 disc rentals from kiosks ($1 more for Blu-ray). The service launched with 4,600 titles from movie companies such as EPIX, Lionsgate, NBCUniversal, Paramount Pictures, Relativity, and Sony Pictures. According to early reports, Redbox Instant also planned to allow users to download content to mobile devices for offline viewing; titles could be either rented or purchased, in SD or HD quality, with rental customers having 30 days to begin viewing their title and 48 hours of unlimited views thereafter.

In June 2013, Sony made the official announcement at E3 that Redbox Instant would be available on the PlayStation 4 console, and it was released in late 2013. Android and iOS apps also enabled streaming content on mobile devices.

Redbox Instant disabled sign-ups for new users in mid 2014 owing to a growing number of criminals using the website to verify stolen credit cards. In Q2 2014 earning call, Outerwall, Redbox's parent company, stated that they were "not pleased" with Redbox Instant subscription numbers. Finally on October 4, 2014, it was announced that Redbox Instant would be shutting down on October 7, only 19 months after its initial launch.

Kiosk design and operation

Redbox began in 2004, using re-branded kiosks manufactured and operated by Silicon Valley-based DVDPlay, at 140 McDonald's restaurants in Denver and other test markets. In April 2005, Redbox phased out the DVDPlay-manufactured machines and contracted Solectron—a subsidiary of Flextronics, which also manufactures the Zune, Xbox and Xbox 360—to create and manufacture a custom kiosk design. The new kiosk was designed by Franz Kuehnrich at GetAMovie Inc. (which was bought by RedBox). It was innovative in that its carousel design not only decreased the number of robotic movements necessary to dispense and restock inventory, it also dramatically increased the number of discs (from 100 to 700+) that could be stored within a kiosk. In addition, the software, designed and developed by Enterprise Logic Systems, was also innovative in that it allowed RedBox to remotely monitor and manage inventory at all kiosks throughout the country.

The company's typical self-service vending kiosk combines an interactive touch screen and sign. It uses a robotic disk array system containing a stacked carousel of DVDs and web-linked electronic communications. Kiosks can be located indoors or out and can hold more than 600 DVDs with 70–200 titles, updated weekly. The kiosks are built as modules, and in areas with higher sales figures, a second machine can be connected to the first one in order to offer a wider selection. The customer pays with a credit card or debit card. DVDs can be returned the next day to any of the company's kiosks; charges accrue up to 25 days, after which the customer then owns the DVD (without the original case) and rental charges cease. Customers can also reserve DVDs online, made possible by real-time inventory updates on the company's website. While customers can buy used DVDs from the kiosks (with unsold used DVDs returned to suppliers), Redbox estimates only 1% to 3% of the company's revenue comes from used-disc sales.

A Redbox kiosk rents its average DVD 15 times at an average of $2 per transaction plus any applicable taxes.

Movie studio lawsuits

With growing concern in 2009 that DVD kiosks might jeopardize movie studio income from DVD sales and rentals, three major movie studios, 20th Century Fox, Warner Bros., and Universal Studios, separately refused to sell DVDs to Redbox until at least 28 days after their arrival in stores. Since Redbox’s business model relies upon new releases, and Fox and Warner Bros. represented 62 percent of home video rental revenue in 2008–09, analysts have said that this “windowing” of new releases by the three studios may make Redbox’s business model unviable.

Redbox responded by filing lawsuits, first, against Universal in October 2008, then against 20th Century Fox and Warner Bros. in August 2009. In these lawsuits, Redbox has asserted three claims against the studios: copyright misuse, tortious interference, and antitrust claims. In August 2009, the federal judge hearing the Universal case rejected the first two claims, but allowed the antitrust claim to continue. While the judge found sufficient merit in the antitrust claim to allow the case to continue, some independent observers doubted it could succeed, since Redbox "must show that the studios worked together as a cartel... There is little evidence of an industrywide conspiracy." In October 2009, 20th Century Fox and Warner Bros. filed motions to dismiss Redbox's lawsuits against them, with Fox arguing that "antitrust law does not require a seller to provide its product through the distribution channel that the buyer demands, on the date that the buyer demands, or at the price that the buyer demands," and Warner Bros. saying that "This is precisely the type of routine business dispute, motivated solely by a merchant’s attempt to protect its profits rather than to protect competition, that the antitrust laws are not meant to address."

Other major studios — Sony Pictures, Paramount Pictures, and Lionsgate — signed distribution deals with Redbox. The Walt Disney Company permits third-party distributors to sell to Redbox, but has not entered into a direct relationship with the company. Both sides of the studio lawsuits have pointed to these revenue-sharing deals to shore up their argument, with Redbox president Mitch Lowe saying, "our growth can lead to theirs [the studios' growth]. For example, Redbox currently estimates we will pay more than a combined $1 billion over the next five years to Sony, Lionsgate and Paramount to purchase and then rent new-release DVDs to consumers," while Warner Bros. says the deals are proof that far from being shut out by Hollywood, "Redbox’s business has thrived since its suit against Universal, underscored by lucrative distribution deals with Paramount Home Entertainment, Sony Pictures Home Entertainment, and Lionsgate."

Redbox entered into an agreement with Warner on February 16, 2010, followed by Universal and Fox on April 22, 2010. In the agreements, which settle Redbox's lawsuits, Redbox agreed to not make available for rental films from these studios until 28 days after their initial home-video releases. Redbox also improved their ability to make available Blu-ray Disc releases from the studio parties.