This blog post on how desperate Hollwyood and Wal-Mart are to protect margins in movie DVDs by Dorothy Pomerantz of Forbes.com does a great job of handicapping a business battle.
Red Box, the kiosk-based rental service that rents for $1 / night is so successful that Hollywood has ordered Wal-Mart to stop selling to them. Like a good blog post, that fact made me think. Even when buying retail, Red Box can still make a profit renting disks for $1/night. Blockbuster probably gets the best bulk pricing of anyone besides Wal-Mart and they are going broke trying to rent for $5/night.
The business message there is that Blockbuster's stores, displays and clerks don't ad value. People just want the disks they've seen advertised elsewhere, and that's why Red Box can undercut by so much - because the marketing and store overhead is paid by someone else (in Clifton it's Shop-Rite).
Pomerantz closes with a down note for Red Box, noting that streaming video may overtake even their business model - but I have to figure it's a long way down before even streaming video can squeeze out $1/night.
But it’s worth noting that Netflix recently agreed to delay renting Warner Bros. new releases for 28 days. In exchange, the company will get access to more Warner Bros. library movies to stream on its fast growing “Watch Instantly” service. Right now Netflix has 17,000 films available for streaming. The company is making deals with the likes of Sony, Microsoft and Nintendo to allow films to be streamed over their video game consoles. It clearly sees streaming as the future of movie rentals. Not a good omen for Redbox.
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