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Summary:

Hollywood is currently split over the cheap $1-a-night DVD rental prices from kiosk companies like Redbox, but new data from SNL Kagan suggests that VOD vendors should be worried as well. Could VOD companies make money with $1 per night rentals? The short answer is no. […]

RedboxLogoHollywood is currently split over the cheap $1-a-night DVD rental prices from kiosk companies like Redbox, but new data from SNL Kagan suggests that VOD vendors should be worried as well. Could VOD companies make money with $1 per night rentals?

The short answer is no. Video Business, which first covered the story, writes:

At a $1 price tag, SNL Kagan determined that VOD distributors stand to make $0.08 to $0.19 per transaction, taking into account studiosā€™ assumed 70% revenue cut. That would result in a loss on the transaction for VOD companies. However, a $3.99 price point consistently yields a profit for them.

Kagan also believes that studios probably wouldn’t get behind the low $1 VOD rental price as well.

The research firm thinks that VOD companies could be vulnerable to Redbox’s low-low value proposition. We’re not so sure. Redbox is convenient, and getting moreso as it expands its number of kiosks around the country. But it still requires getting in a car and driving somewhere (to pick up and drop off). That can certainly be more attractive than waiting for a movie to arrive by mail, or drive to a dedicated video store, but the convenience of pushing a button to beam a movie directly to your TV — especially for impulse transactions — can’t be beat.

  1. What you are forgetting is that consumers emotionally anchor to prices. I’ve seen investment bankers balk at paying $2 for a tv show simply because they’ve anchored around free. Its irrational, since saving time watching ads would rationally be worth 10X $2 rationally valuing their time, but it often just doesn’t work like that.

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  2. There’s also is not the long tail type of selection inside a Redbox. A Redbox would have to be as big as a McDonald’s to house all of the DVDs that Netflix carries.

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  3. Having only been a Netflix subscriber for three months I don’t think Redbox is any competition for me. I enjoy picking out a list of movies at home and waiting for them to come in the mail. I’m in no hurry to see the latest release. I’ll see it eventually. In the mean time I have a library card, I’ll read a book.

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  4. I only like redbox when im bored otherwise the netflix is the bomb any movie you can think of is ther but redbox is limited so I dont think it will do much damage sales wise

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  5. WestPhillyForever Tuesday, September 29, 2009

    I was a huge user of Redbox for a year or two. I love the business model and the price point can’t be beat…except by my new favorite Netflix. Now they work in concert for me. Netflix is “the man” when it comes to selection but it’s far from instantaneous so when my son or I wants to see a movie NOW, the $1 Redbox machine is usually the solution.

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