REDBOXS STRATEGY IN THE MOVIE RENTAL INDUSTRY

AN ASSIGNMENT PRESENTED TO Mr. KOLA PRASAD FACULTY OF G.H. PATEL P.G.INSTITUTE OF BUSINESS MANAGEMENT SARDAR PATEL UNIVERSITY ON 12th MARCH 2013

In Partial Fulfillment of The Requirement for Business Policy & Strategic Management-II Course In The Master of Business Administration Program

PRESENTED BY BHUMINKA ENGINEER 11M10 KEYUR VARDE YAKSHYA THAPA 11F19 11F45

INTRODCTION TO REDBOX
Redbox is leading the way in the premier industry of DVD rental kiosks. With Coinstar as its established parent company, redbox is currently surpassing its competitors with its number of self-service kiosks. Redboxs growing popularity is facilitated by its physical distribution, which places the kiosk in high traffic locations such as Wal-Mart, Kroger, McDonalds and Walgreens. Due to redboxs standing as the progressive option for DVD rental, its decision to target t he 1824 year old demographic was evident. This demographic embodies the idea of innovation, experimentation, and dependency on technology, all of which are imperative to transform an introductory product into a nationwide brand. The following report provides secondary and primary research in order to construct an accurate glimpse of redbox and its emergent status within the 18-24 year old target market of the DVD rental industry. This report includes the description and results of eighty self-administered surveys completed by samples of the target market. Based on an analysis of these results, the report concludes with recommendations designed to assist redbox in more effectively reaching its 18-24 year old target market.

INDUSTRY OVERVIEW
Industry Size Revenue & Product Life Cycle

The estimated size of market in 2010 is $7. 724 billion The DVD, game, and video rental

industry is currently in the decline stage of the product life cycle (PLC). The pressures of competition cause the decline. Not only were more brick-and-mortar companies beginning and lowering their prices, new methods of selling caused increasingly high competition in other ways. Companies like Netflix emerged and cable and satellite companies began marketing video streaming. In order to keep up with the many aspects of competition, the prices throughout the entire industry were forced to drop. This also explains why the number of units sold increased but the revenue has continued to decrease. The heightened competition can be predicted to cause an improvement in the PLC stage of the DVD, Game, and Video Rental Industry as well. Prices are lower and new innovations are being introduced causing increases competition. Once kiosks

become more successful and begin to gain its own loyal customer base it could single-handedly cause the industry to revert back to the maturity stage of the PLC. From 2000 until 2005 the industry was steadily growing because it was a new product being introduced to the market and new competitors were being introduced as well. Thus, prices were lower and the demand was higher.

Competitors

Competition within the DVD rental industry is very stiff. The reason for such competition lies in the fact that the industry is cutting-edge. As shown in table there are numerous competitors within the market of DVD rental but there is only room for a select few to shine. With the introduction of new technology, there are numerous ways in which the consumer can retrieve DVDs. The internet has broadened the area in which the consumer can attain his or her DVD. The improvement in technology makes it difficult for new companies or brands to enter the market if they are lacking in this area.

Social/Cultural Implications

Redbox has successfully pegged two vital facets concerning the average American consumer: technological advancement and affordability. The DVD rental industry has always been based on the concept of low-cost home entertainment, but redbox kiosks have taken that idea further and molded it to fit the current cultural environment in the U.S. With the continuous outburst of technology, the American consumer has come to demand immediate access to information. and products. Redbox customers are no exception to this movement and are actively seeking quicker, more streamline results. The self-service kiosks provide this modern feel through instantaneous results. Redbox meets its customers request for time flexibility via 24-7 operational hours unlike the confinement of regular store times. This advancement eliminates interactions with employees which allow customer control over their own transactions. Redbox is meeting this social segment by positioning their kiosks in routine locations for the target market such as Wal-Mart, Kroger, McDonalds and Walgreens.

Economic Environment

Despite slight increases in the GDP, the American economic status continues to reflect the effects of the recent recession. The most recent release shows that in the fourth quarter of 2009, the GDP increased at an annual rate of 5.9%. The Consumer Confidence Interval for January 2010 is at 55.9, up from 53.6 in December. The DVD rental market has found a niche within these economic difficulties as being the affordable entertainment option. According to Standard & Poors, there has been an increase between DVD rentals and the recession, and this growth trend is predicted to continue into future.

Regulatory and Legal Issues

The Entertainment Merchants Association (EMA) regulates the DVD rental industry. According to the EMAs public policy, it states that its priority is to execute the first sale doctrine that protects the DVD rental retailers rights to sell and/or rent lawfully made copies without any limitations. The association also provides enforcement of movie ratings that include restrictions provided by Motion Picture Association of America (MPAA) concerning violent material. An implication the DVD kiosk industry faces is consumer responsibility of age appropriate legal consent using a self-service kiosk. The kiosk prompts if one is over 17- years-old when it is applicable to a sale but have no way to identify and control the sales to minors who agree to the terms and use the service without a legal guardian. The sale of an R -rated movie has then been made, which is against EMA policy. Another implication of the industry is the act of consumers purchasing and unlawfully making copies of DVDs and re-selling them under a non-licensed business

Technological Developments

Technological developments have played a crucial role in the DVD rental industry in the past few years. DVD consumer spending has opened a new market in the industry creating a sales concern for rental retail stores with the introduction of user friendly and cost saving rental kiosks, such as redbox. The self-service kiosks provide a $1-per-night rental rate, having the brick-and-mortar retailers running for their money. Blockbuster has started their own rental kiosk program to affiliate themselves with the new technological advancement. The developments of
digital downloading and on-demand rental services, problems and opportunities have risen for the DVD rental industry. Advancements such as video-streaming movie rental, by companies like Amazon and Netflix, provide in-home convenience for renters. By obtaining a subscription membership to the

parent company, video-streaming rentals are unlimited based on the companys movie libraries for one monthly fee. This technology creates another area for competition to the DVD rental industry, In November 2009; redbox announced a test site in partnership with Sonic Solutions' Roxio Cinema now that allows frequent redbox consumers to be given vouchers to acquire digital downloading movie delivery providing more efficient customer service in hopes of

starting their own digital delivery business. Redbox and Blockbuster Express have taken advantage of the Blu-ray movement and have contributed the new disk form of DVD rental into their kiosks. Redbox started this service at the end of 2008 selling for the very same price as a regular DVD at $1. Blockbuster Express rents Blu-ray for $2-per-night.

Growth Potential & Opportunities

Through ever expanding developments comes potential and opportunities for growth in the DVD rental industry. Now is the time for redbox to be a part of the market because the average consumer will enjoy the benefits of obtaining a product faster, having 24-7 access, selfservicing convenience, and enjoying the use of technology on the rise. Not only is redbox cosmetically trendy, making it attractive to the consumer eye, but it also presents further appeal for prospective retailers. The self-servicing kiosks allure additional foot traffic into stores increasing its revenue with the extra service it provides. The kiosks are also self- maintained, hence retailers avoiding additional employee wages. Also because the devices are self-sufficient, they provide excellent customer service avoiding any human error and satisfactory purchase Growth will undoubtedly occur with this self-service and video streaming movement but also in the works is the ability to digitally download and transfer movies on to SD cards or memory sticks. Rather than having a physical disk, renters will be able to download movies from a kiosk and plug them into their own home entertainment systems. The industry has found this new opportunity to have long-term effects because it decreases the chances of having physical problems with their products. The SD cards will be effective in the sense that consumers will no longer worry about inconvenient defects with the products such as nicks and scratches. Also the DVD kiosk retailer will no longer have the concern over non-returned DVDs shortening their supply. The advantages of this new break will open even further outlets for consumer viewing like cell phones and other portal devices that are adapted to the SD card method.

RED BOXS COMPETITIVE APPROACH

The generic competitive strategy that most closely fits the competitive approach that Redbox is taking is overall low-cost. The competitive strategy is probably the most important strategic commitment a company can make. It tends to drive the remaining strategic actions a company undertakes and sets the whole tone for pursuing a competitive advantage over rivals. I chose the overall low-cost strategy because Redbox uses lower-cost edge to under-price its competitors and attracts price-sensitive buyers in enough numbers to increase profits. Redboxs achievement of lower costs is the theme of their strategy. Redbox is able to do this because they include features and services in product offering that buyers consider essential and find approaches to achieve a cost advantage in ways difficult for rivals to copy or match because they do a better job than their rivals of performing value chain activities efficiently and cost effectively by revamping the value chain to bypass cost-producing activities that add little value from the buyers perspective.

REDBOXS COMPETITIVE ADVANTAGE STRATEGY

Netflix, currently considered the market leader in the movie rental industry, is planning to focus more specifically on the streaming rental business. Once this happens the brick and mortar rental space will be primarily left to Redbox and Blockbuster. In an attempt to stay relevant in this brick and mortar setting, Blockbuster has recently entered the movie kiosk sector via Blockbuster Express and is now directly competing against Redbox. Although Redbox is now facing direct kiosk competition, Redbox is still able to position and differentiate itself based on having far more locations and access than Blockbuster, 33,000 compared to 10,000 as indicated by Home Media Magazine. It also surpasses Netflix on entry price with no monthly contracts, which allows Redbox to appeal to the casual movie watcher.

REDBOXS FUTURE PROSPECTS

According to the Daily News on-line DVD rental is a $8 billion industry. Some of Redboxs strengths are that they were the first successful entrant into nationwide DVD rental kiosk category. They now have over 33,000 red conspicuous kiosks in over 27,800 locations

nationwide. There is high brand awareness through strategic placements in leading retailers. Finally, the strongest strength is the inexpensive, convenient, and low involvement business module that appeals to the large target audience. Future prospects for Redbox (or Opportunities) could be to se in-store displays to increase new movie releases awareness on addition to expanding their location sites. As mentioned earlier Redbox has a plan to focus more specifically on the streaming rental business it is even rumored that Redbox will launch a digital service with a partner. They should continue to provide innovative alternate means of watching movies. In addition, another opportunity would be to continue to expand word-of-mouth referral through proactive use of social media which is becoming one of our strongest marketing tools. The biggest future prospect would be if Redbox could close the gap of renting newly released movies between Redbox and some of its competitors.

REDBOXS STRATEGIC ISSUES THE WORRY LIST

Every company has strategic issues and problems that merit front-burner managerial attention. Redbox is no exception. The purpose of the worry list is to identify the specific issues/problems that management needs to address. The worry list outlined below is an analytical step that zeros in on the strategic issues and problems that stand in the way of the Redboxs success based on the research. The "worry list" is a tool to identify issues to be resolved for Redbox to be financially and competitively successful in the years ahead. Actually deciding on a strategy and what specific actions to take is what comes after the list is developed.

The Worry List: What is the best strategy to figure out alternative innovative means of delivering movies to its customers? How can Redbox be the driving force in the video industry in the International market? How should Redbox deal with the concern of the major studios not offering new releases to the Redbox until 28 days after they went on sale? What should Redbox do about the recent increase wholesale prices on new-release from studios?

RECOMMENDATIONS
The first recommendation is that Redbox should continue to develop strategic initiatives to expand its distribution, increase its market share, and become a leader in this industry. Redbox should continually invest in Research and Development to remain a competitive driving force in the video industry and find alternative innovative means of delivering movies to its customers. One way to do this is to launch a digital service with a partner. Consumers are increasingly choosing to watch movies via the Web and not DVD. In Coinstar's last fiscal quarter, Redbox revenue came in below expectations because of the impact of three studios not offering new releases to the company until 28 days after they went on sale. By having content partnerships and relationships already in place, pay-TV operators can eliminate much of the complexity and cost associated with populating a movie-streaming service. The second recommendation is to expand internationally. There's an upper limit to the number of subscribers here in the States, so to keep growing, Redbox should expand outside the borders to boost its top-line and earnings growth. The strategy to expand internationally will benefit Redbox, providing the necessary platform for raising its profitability on a global basis, as the company significantly diversifies the risk of customer concentration in a particular region. The final recommendation relates to the recent increase wholesale prices on new-release from studios as well as the concern of the major studios not offering new releases to the Redbox until 28 days after they went on sale. Redbox should evaluate their current pricing structure which

has already increased slightly over this past year by offering some new releases for $2.00 - $3.00 the day the new release goes on sale in stores. The higher price should enable Netflix to avoid a 28-day delay in the availability of many titles that three studios, Warner Brothers, Universal Pictures and Twentieth Century Fox, impose on Redbox