Movies

I recall one of my friends asking for a suggestion for what movie to watch in regards to one of his class assignments. I mentioned one that I had recently seen, "Sherlock Holmes". He asked if he could borrow it, and I said in return that I actually didn't own the movie but told him that he could rentit at Redbox. He responded back, and said "what's a Redbox?" This was last year back in November 2010. I totally forgot that he barely got back from an LDS mission in August.

As I attempted to describe this Redbox phenomena, I said that it was a big machine that looked like a red box and was filled with DVDs that you could pay $1/night to rent a DVD. Usually you can see these Redboxes in most grocery stores and outside of gas stations and fast food restaurants. His response was very amusing, he was amazed and thought we were beginning to live a high-tech futuristic world. To be honest actually, I was surprised that he hadn't used one yet. Anyways, the next day I took him to one of these and showed him. He was quite fascinated and liked the idea.

So how did Redbox gain momentum and enter the movie-renting business against Blockbuster and Netflix? I want to use a 5-step process to analyze this successful entry into the market.

First, identify the specific barriers to entry into the industry.
I would say two of the biggest barriers are access/location and price. Since at that time, Blockbuster and Netflix were very worldwide and had both implemented mail-in and online-enabled plans. People want to be able to very newly-released DVD's for a reasonably price.

Second, develop a strategy to overcome/eliminate each barrier to entry.
Redbox wanted to be extremely accessible and found everywhere. Through the innovation of having a little Redbox, they could essentially be placed anywhere and be accessed at ANY time. They also decided to be extremely low price. From my apartment, there is a Redbox literally within a minute of driving.

Third, leverage or assemble complementary assets (through alliance or acquisition).
Besides having the hugest asset of their idea of having a red box filled with DVDs enabled through technology, they also aligned themselves with grocery stores, gas stations, fast-food restaurants, basically places that can be found on every corner.

Fourth, create niche markets with differentiated products (minor product innovation).
DVD's are able to be returned to ANY Redbox location, which is not the case for Blockbuster (if you rent it at 3300 s. 2300 e. you have to return it there otherwise the system can't track it). Another innovation was a barcode engraved on the DVD which allowed for quick and automated transaction.

Fifth, reconfigure value chain activities (process innovation).
They also used technology to accomplish this, by having no employees, no physical store, etc. People self-serve themselves and use a credit card to track and manage transactions.

One thing that Redbox has to deal with now, is the new problem of 28 days delay in new releases.
As one critic said in commentary to an article posted on the WSJ,

"One of the key drivers for RedBox success was the immediacy of new feature films coupled with price and convenience, which increased frequency and loyalty of viewers. Movie lovers want to watch as many movies as they want at an accessible price during a short period of the release. 28 days late is like arriving to a party when everyone has left the building. No wonder, I was feeling frustrated. Movie studios should learn from the music industry and Apple. They should listen to the market; RedBox and NetFlix success are the target audience shouting out loud that something is not working and that their needs are not met. I wonder if $5 video-on-demand will satisfy this crowd, when before they could want 5 movies for the same price instead of one. Time Warner's Warner Bros should embrace a new business model and partner with RedBox or similar channel to satisfy customer needs. Video-on-demand and DVD rental are not exclusive, they are complementary."  -Javier von-Westphalen

What should or can Redbox do to overcome this obstacle that is very much hurting their profitability?