DVD rental company Redbox has reduced its earnings expectations after increased competition from online streaming firms and retailers cut into its business. Redbox is owned by Outerwall and offers DVDs through a network of vending machines.
The company, which has been called a replacement for old-fashioned DVD rental companies like Blockbuster, attracted a huge amount of press attention from its innovative strategy of placing rental vending machines at high-traffic areas.
Its formula has been largely successful – Redbox stocks blockbuster movies in its network of vending machines, which renters can borrow – thanks to the low costs associated with running the machines – at below-market rates.
Its success, however, has been threatened by the growing popularity of streaming websites such as NetFlix, which offers many of the same films that Redbox stocks, using a monthly subscription fee instead of a $1-per-movie agreement.
The convenience of services like NetFlix has made Redbox’s affordable yet largely inconvenient rental service less competitive. In July, the company rented over 74 million DVDs to customers, yet falling margins continue to hurt the business.
In order to attract customers away from NetFlix and other online streaming sites, such as Amazon.com, which now offers users the ability to stream movies online, Redbox has had to reduce the price of many of its movie rentals.
Despite reduced profit margins, Outerwall is optimistic that Redbox can become an entertainment industry success story. The company plans to buy $100 million of its own stock in order to expand its business and focus on large-scale revenue growth.
Outerwall’s profit margin has declined from 8.2 per cent in the first half of 2012 to just 6.2 percent in the same period of 2013, largely due to the decreases in pricing for its rental service.
Despite the falling profit, insiders believe that the company can continue to grow and attract more customers. Its predictions appear to be coming true, as Redbox rented over 16 per cent more DVDs in August this year than in August of 2012.
