Redbox: Disruptive Innovation in DVD Rentals

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Case Details:

Case Code : BSTR359
Case Length : 14 Pages
Period : 2002-2009
Pub Date : 2010
Teaching Note :Not Available
Organization : Redbox Automated Retail / Redbox Automated LLC
Industry : DVD Rentals / Entertainment
Countries : USA

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Excerpts Contd...

Background Note

In 2001, McDonald's Corp. (McDonald's) was on the lookout for new business opportunities and its new business development department came up with the concept of using automated kiosks, which it called the Redbox, to offer newly released DVDs on rent at its restaurants...

The Redbox Experience

Redbox's business model was quite simple. A customer could rent a DVD for a day from a kiosk for US$ 1 plus tax. The DVD could be rented at any time during the day, but had to be returned to a Redbox kiosk before 7 PM the next day...

Problems with Movie Studios

However, some major Hollywood movie studios, as well as a few analysts felt that Redbox's low rental charges, and its practice of selling used disks, was not only affecting DVD sales, but also creating a surplus of used DVDs in the market...

Competition

Redbox faced competition from other DVD rental kiosks, online video rentals like Netflix, Inc. (Netflix), and brick-and-mortar stores like Blockbuster, Inc. (Blockbuster) and Movie Gallery, Inc...

Outlook

DVD rental transactions in the US grew by 1.8% between 2007 and 2008, to US$ 2.6 billion. Redbox's market share (which was 1% in 2006 and 2.3% in 2007), increased to 9% in 2008, and stood at 13.8% for the first six months of 2009...

Exhibits

Exhibit I: The Redbox Logo
Exhibit II: The Major US Film Studios as of 2009

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