Blockbuster Should Buy Redbox

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.