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Redbox doubles-down, Amazon bows out of disc rentals

Netflix DVD-by-mail subs 2012-2017

Redbox is striking Hollywood deals and planning a big increase in kiosks. Meanwhile, Amazon is shutting down its disc-by-mail business. The data says Amazon is making the smarter move.

Redbox plans big investment

Redbox CEO Galen Smith is a man on a mission. He wants to make sure consumers have the low-cost option of kiosk disk rentals to keep the cost of home entertainment down.

“In small and large towns across America, millions of hard-working Americans rely on Redbox every day for relief and value from the rising costs of going to the theater, or exorbitant fees from cable and satellite companies. Renting discs remains an important consumer offering for families on a budget, or any consumer who wants a better value for new release content.”

To support that mission, he is signing Hollywood deals and planning an expansion of kiosk availability.

Mr. Galen just extended a deal with Lionsgate that will continue to ensure the company’s movies are available for rental from Redbox as soon as they are available to the home market. Last month Fox agreed that Redbox could make its movies available for rental one week after home availability.

In May, Redbox said it planned to expand the availability of Kiosks by 1,500, to a total of more than 41,500 in the U.S. The company has also started selling disks through the kiosk.

Unfortunately, signs are consumer interested in disc rentals is fading fast. U.S. store rentals have declined from $1.6 billion in 2011 to $487 million in 2016. The kiosk business looks headed the same way.

Kiosk rentals on the decline

According to the Digital Entertainment Group, kiosk disc rental revenue has declined significantly over the last four years. In the second quarter of 2013 kiosk revenue was $458 million and has fallen to $307 million in Q2 2017. What’s more, the decline appears to be accelerating. The year-over-year decline in revenue was 13% in Q2 last year and was 19% this year.

US kiosk disc sales 2012-2017

This decline comes even though kiosk disc rentals hold a big advantage over electronic media. It costs $1.50 to rent a movie from Redbox, and the average DVD quality rental on Amazon is $4.99. As well, many movies are available much earlier through the kiosks. For example, Passengers is available through Redbox to rent and buy, but only to buy from Amazon. Streaming services such as Netflix, if they get a recent movie at all, must wait a year after theatrical release.

Amazon bows out of disc-by-mail market

Amazon announced on Monday that it would close its European disc-by-mail service LOVEFiLM in October of this year. The company stated:

“We have very much enjoyed delivering the LOVEFiLM By Post service to our customers. However, over the last few years we’ve seen a decreasing demand for DVD and Blu-ray rental as customers increasingly move to streaming.”

To understand why you only have to look at the performance of Netflix’ DVD-by-mail service over the period. In Q1 2012, Netflix had 10.1 million subscribers receiving discs in the mail. In Q1 2017 the number has fallen to just 3.8 million. Moreover, the decline is not tapering off. Subscribers fell over 20% year-over-year in Q1 2017. With the DVD-by-mail service providing just 4% of total revenue, expect Netflix to close its disc service soon.

Why it matters

Kiosk disc rentals are declining fast in the U.S., down 20% year-over-year.

The decline comes despite a substantial price and availability advantage over digital delivery.

The disc-by-mail business has seen similarly large declines.

Further investment in disc rental businesses, as planned by Redbox, seems ill-advised.

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