Born Out of Disruption – How Redbox is Providing Value to Customers

In a world where cable TV is shedding subscribers, streaming is all the rage — and nobody’s sure if movie theaters will make a post-pandemic comeback, there’s one entertainment option you’re probably not thinking about: DVDs and Blu-Rays.  

 

Redbox is, and CEO Galen Smith says that’s not going to change anytime soon. 

 

“We think it’s you know, a 10-to-15-year tail where consumers are going to continue to do it,” Galen said during a recent interview on All Business with Jeffrey Hayzlett. “Our ability to serve a customer with a low-cost DVD is the cheapest way for any consumer to watch that movie outside of piracy.” 

While renting a DVD may bring back visions of video stores on a Friday night, Galen brought up several good points of why he sees the rental business as a viable option into the future. 

 

One is delivering value, at scale. Redbox has 40,000 kiosks across the country. To put that into perspective, that’s more Redboxes than McDonalds, Starbucks, and even movie theaters combined. Galen says renting movies at $2 or less a night serve “a very value conscious consumer.” 

He adds that value conscious consumer was especially valuable over the last year, with movie theaters closed, Hollywood studios had few options for its 2020 new releases. 

 

“(Movie) studios started to (open) up new windows,” Galen said. “You have this premium video on demand that came out where it was a $20 rental. Now, that may still be a great deal, relative to taking your family to the movie theater, but it’s not a great deal to be thinking about a $2 rental.” 

 

The other is access to broadband. 

 

“We’re able to serve a market where (consumers) don’t have high-speed internet to be able to bring them that content that they’re going to love,” Galen said.  

 

Don’t think of Redbox as being in a ‘buggy whip situation,’ putting all of its faith in outdated technology. It’s getting into streaming as well, and the timing couldn’t have been better. 

 

“We pivoted in February, not knowing we’re going to face a global pandemic. We launched a free live TV service, and so we gave consumers the ability to, watch at the time about 30 channels,” Galen said. “We’ve now expanded that to over 95 channels where they can tune in and watch. There’s no cost to the consumer. It’s ad-supported and we’re bringing them some really great content.” 

 

Galen knows the headwinds are in his favor launching a free streaming service. All the big pay TV companies have shed millions of subscribers over the past few years and the pandemic is accelerating the trend. Cord cutting has become so common that the number of households ditching traditional pay tv could reach 46 million by 2024.  

 

While you might think Redbox might be late to the streaming video party, Galen believes his company has an advantage. 

 

“We’ve got 40 million customers right (now) and we want to introduce them to new entertainment options,” Galen says. “In late 2017 or 2018, we launched a digital transactional video on demand service. As you can imagine, we saw a ridiculous amount of growth. Our digital version, digital service grew 125% year over year last year, despite the fact there wasn’t a lot of content that was coming out.” 

 

He continued, “We’re probably at the first or second inning of this. Long term we think it will have a huge impact to our bottom line, but today, it’s really about making investments.” 

 

One thing Redbox is investing in is content. It’s not just about renting or streaming movies, Redbox is making movies of their own and distributing others. Galen says they’ve been partnering with Hollywood producers and the company has an acquisition department looking for content.  

 

“We have been around for 18 years. We have a lot of information about movies and actors that our consumers want or like,” Galen said.  

 

“The way we think about (content) is we just want to make sure there’s great movies for Redbox. We love making money, right? So, we’re agnostic about releasing in other windows.” 

 

To provide some content, a window is the schedule in which a movie is released. For a movie, it usually goes to the theater first, then DVD/Blu-ray, streaming, and TV. Those windows have been shrinking, especially during the pandemic. For example, with theaters closed, Disney made headlines in 2020 when it released several movies on its streaming platform Disney+ for $30. Warner Bros. decided to release its 2020 movies in both theaters and HBO Max. Now many film fans and industry observers are curious how the studio/theater relationship will take shape post-pandemic.  

 

 For some insight on what Redbox’s “agnostic” release strategy will look like, Galen offered up the example of Shadow in the Cloud. The film won the Midnight Madness Award at the Toronto Film Festival in 2020, urging Redbox to buy the rights to distribute the movie in the United States. With theaters closed, Redbox offered to stream it on demand platforms like Amazon Prime Video for $20 in January. A month later, it was in the Redbox kiosks for $2 and you can rent it on several streaming platforms for just $3, and it’s also free for Hulu subscribers. Galen said at some point it will be streaming on ad-supported Redbox TV. 

 

“We’re really excited about building this library and this offering,” Galen said. “It allows us to be a little bit more opportunistic and invest in these projects to really put together stuff that’s going to work for consumers.” 

 

Galen is setting Redbox up for success by branching out without sacrificing its core business.  

 

We had a great conversation, and this post barely scratches the surface. If you want to hear how Redbox was born out of disruption and how a finance guy ended up running an entertainment company, click here.