19 Comments

Summary:

Not to be left behind by the download revolution, video rental company Blockbuster is reportedly working on a set-top box to pipe movies directly to your TV. The move isn’t entirely unexpected — what else was it going to do with Movielink, the movie download service […]

Not to be left behind by the download revolution, video rental company Blockbuster is reportedly working on a set-top box to pipe movies directly to your TV. The move isn’t entirely unexpected — what else was it going to do with Movielink, the movie download service Blockbuster acquired for $6.6 million last year? But maybe the company should hit pause before going forward with it.

Blockbuster needs to do something to juice up its business because Netflix is eating its lunch. But getting into the hardware game will be an expensive endeavor, especially in an increasingly crowded field already packed with big names like Apple, TiVo, Xbox 360, Vudu and soon the Netflix LG box.

There is concern that forging ahead online could cannibalize Blockbuster’s existing real-world retail locations. But there’s a way for the two to co-exist — it should buy Redbox.

Redbox has 6,800 fully automated DVD rental kiosks across the country (more locations than Blockbuster) in stores like Walgreens, Wal-Mart and even McDonald’s (which is an owner, along with Coinstar). Instead of building and marketing another set-top box for the home, Blockbuster should adjust the Redbox kiosks to also digitally send movies to the set-top boxes people already have, like TiVo and Xbox.

Going out into the real world to download something may seem like an unnecessary step, but it’s actually more of a transitional one because it combines elements people are already familiar with.

First, people still go to video stores. In adding these kiosks to their real-world locations, Blockbuster would bridge the the familiar experience of browsing the aisles for a movie with the more unfamiliar one of digital delivery.

Second, by using existing set-top services like TiVo, people wouldn’t feel like they have to buy a new device, or worry about buying one that will die quickly (read: HD DVD).

Finally, by leveraging the existing Redbox kiosks in non-video locations like grocery stores, Blockbuster could take advantage of impulse renting. People are already used to the idea of DVDs being sold in supermarkets, this would nudge them a little further and into downloads.

The real-world may wind up giving Blockbuster the advantage it needs to leapfrog into the digital future.

  1. I think Blockbuster would have more luck in trying to buy DVDPlay and then going after Redbox. According to analysts, Redbox is expected to do an IPO as soon as market conditions improve. We haven’t seen anything filed with the SEC yet, but if you tune into the last two Coinstar conference calls, you get the sense that it is destined to happen. Add to this the pressure that Coinstar is getting from Shamrock, an activist fund that owns a lot of their stock, and my sense is that the IPO is inevitable. When/if they do file an S-1 I don’t expect that we’ll see a lot of profit, but we should see some tremendous revenue growth driving the deployment of their kiosks. It’s hard to know exactly how much they would be priced at, but it wouldn’t surprise me if Redbox ends up with a higher market cap than Blockbuster if/when they do their IPO. Blockbuster could try some kind of a merger, but I don’t think that they would be able to afford Redbox, even if the concerns about store cannibalization weren’t an issue.

    Share
  2. Archos released such a solution where you bring your 40GB 100 dollar Archos device, which doesn’t have a screen nor a battery, load all the movies you want from one of CPFK’s 4000 movie rental machines in France, then you connect the Archos Moovyplay to a special docking station connected to your PC.

    For now Moovyplay has been launched in 30 test DVD rental stores in France, it will be launched in hundreds of stores during the rest of April. And should be coming to other countries soon.

    CPFK and Archos have patented the technology.

    Share
  3. I meant that you connect the Archos Moovyplay to a special docking station connected to your TV with also a special remote control.

    On your TV you have the complete list of thousands of available DVD quality movies with trailers, you select the u to 40 movies you want to load next time you go to the store or till you connect your 40GB Moovyplay to the automatic movie vending machine.

    You can activate a 48 hour rental whenever you want using an SMS code. So basically you can load your Moovyplay with 40 movies at one time, and then activate the payment on yoru account using an SMS code and watch the movies whenever you want. And of course no need to return the movie, it gets simply replaced when you load other movies onto the device.

    Share
  4. I tried Redbox once several years ago. Unfortunately the DVD it spit out was defective and the unit’s phone number was an answering machine. I hung up.

    Here’s a simple formula for making money renting movies online:
    1. no hardware – if you try to sell a box, nobody will buy it.
    2. no software downloads – nobody wants do download, install, register, etc.
    3. no movie downloads – nobody wants to store huge amounts of media on their PC – just stream it in real time with some buffering (thank you Vividas)

    Share
  5. Gee, all this banter is clueless.
    None of this will fly.

    There are TOO many optios now with digital TV coming online and Apple TV, etc etc. Blu-Ray

    Consumers HATE all these options. How many remote controls can a coffie table stand.. How many remote controls can my wife stand. (A lot less).

    When some company comes out with a cheap Digital TV tuner, with PVR and Apple TV functionality, plus optionally Blu Ray all in the one box.. (Come on you cheap asian electonics makers. where is it!!!)

    THEN you;ll have a product that actually sells.

    And you better hurry up as patent filings point to Apple making the next AppleTV very much like this…

    But I would prefer an open platform and not be caged by Steves vision and walled garden.

    James

    Share
  6. Interesting read, Chris… I had actually considered writing about such a scenario in the past, but never did.

    Now that time has passed, I would have to agree with Davis. I think Redbox would be too costly for Blockbuster to pursue right now. I actually think Redbox and Netflix would make a better combination, anyway.

    I believe Blockbuster is becoming less relevant all the time, and Netflix is really eating their lunch in the dvds-by-mail area.

    Redbox is the prominent driver in the kiosk space, and as more people find out about them, they are renting from them more and more. While it may not be quite as convenient as getting your movies in the mail, it does well when you want to watch the latest flick today, and don’t want a long wait in the queue, or even a 1-2 day delivery delay.

    Also, with all of their locations (to be 11,000 by the end of the year), they do well with impulse renters who happen to be walking by the kiosk while they are shopping.

    I think we will see some good things come out of Redbox, especially after they figure out that they are an “internet company” and learn how to work with the online crowd better. They’re not there yet, but I think (and hope) they will get there soon.

    Michael
    InsideRedbox.com

    Share
  7. Chris Albrecht Friday, April 11, 2008

    Davis and Michael,

    Those are great points. Perhaps Redbox should buy Blockbuster. While Redbox is growing, Blockbuster has a more familiar brand.

    And familiarity was the bigger point. Finding a way to get everyday folks into the idea of digital downloads through a transition they’d recognize and be comfortable with.

    Share
  8. [...] over at the NewTeeVee blog wrote an interesting post about the scenario of Blockbuster buying Redbox. Here is an excerpt: [...]

    Share
  9. Chris,

    Yea, I didn’t really touch much on your point regarding customers moving to digital downloads…

    I agree 100% that most people are not ready for that step – and the reality is most don’t have such a box (or computer) in their home theater anyway.

    I think the gap does need to be bridged. Perhaps a set-top box is the answer, if it can gain mass appeal. It honestly seems that Apple is the most likely to make that happen, though, not Blockbuster, Redbox or even Netflix.

    Now, if I could rent movies on the AppleTV (or DVR or Tivo or…) for $1, I would be all over it, and I think others would do. But, for $4, I say forget it and head to the Redbox…

    Regarding familiarity, I do see your point, but is Blockbuster really the face you want others to see? Redbox already has McDonald’s and Walmart on their team – do they really need anyone else?

    Share

Comments have been disabled for this post