The hottest thing in movie rentals is as old as the Coke machine -- and just as red.
Redbox movie kiosks are popping up by the thousands in supermarkets, drugstores, restaurants and convenience stores around the country. The kiosks stock DVDs that rent for $1 a day, a remainder-bin price that is less than a cup of coffee at Starbucks.
For all the talk about the Internet, Wi-Fi and cellphones becoming the new gateways to watch movies and wiping out the corner Blockbuster, a ubiquitous vending machine the size of a refrigerator is becoming a growing concern to Hollywood.
Consumers are pulling DVDs out of the Redbox kiosks in record numbers, undermining longtime economics that have propped up the movie business -- and in the process triggered a backlash from a major studio that sought to cut off Redbox's supply of hot new DVDs.
"We have grown at a phenomenal pace over the last six years, and that growth is continuing, even in the midst of the recession," said Gregg Kaplan, chief executive of Oakbrook Terrace, Ill.-based Redbox Automated Retail. "We're not seeing anything that's slowing it down."
Redbox operates nearly 12,900 kiosks throughout the U.S. -- four times as many locations as Blockbuster Inc. -- and plans to introduce 7,100 more by the end of the year. Each machine holds as many as 700 DVDs and 200 movie titles.
Consumers rent a DVD from the machine using their credit or debit cards, which enables Redbox to charge an additional day's rental if the DVD is not returned within a 24-hour period. A typical kiosk can earn significant coin: about $50,000 annually in revenue per machine in operation after three years.
Blockbuster could be getting green with envy at Redbox. The Dallas-based movie rental giant started rolling out its own DVD-vending kiosks last summer and is testing dollar-a-night rentals at 600 stores, with plans to roll out the new pricing to 4,000 outlets.
"We have been watching very carefully as they have progressed," Blockbuster Chief Executive Jim Keyes said. "We think it is very consistent with what Blockbuster does, which is to provide convenient access" to home entertainment.
The discount DVD rental business worries Hollywood movie studios because of fears that it is undercutting DVD sales, which dropped 13% in the fourth quarter and were projected to fall at least 6% more in the first quarter, according to analysts.
