Redbox to take Pay Per View approach to its 2nd online venture

It was only a matter of time before Redbox Instant rose from the ashes, and this week rumors have surfaced that it is about to happen.

Redbox Instant was seen as a bit of a gamble for Verizon, which insisted that it had control of the online vehicle, because it had over 100 million customers it could point at the service. Redbox owner Outerwall took just a 47.8% holding, so effectively lost control of the business.

But in the same way that Netflix was always going to have to do an online service to supplant its DVD online ordering system, Redbox was always going to have to make the same transition to online. At present its kiosk business rents DVDs for a few $1s a day, and still manages to make money, but the US love affair with DVD devices is rapidly evaporating and streaming is taking its place.

The fact that Verizon did not see Redbox Instant as a big enough hit to warrant its continued attention, does not mean that Redbox itself would not have been delighted with its early success, and is happy to do it once again.

The story that it is considering doing so came out in Variety this week, on the back of company results which showed the kiosk business is beginning to struggle. Redbox’s revenue for Q4 2015 was $407 million compared with $490.7 million in 2014, a 24.3% decline in movie rentals down to 35.8 million and it expects a similar fall again this year. The company continues to eliminate under-performing kiosks and revenue per rental is now up to $2.98 up 25 cents from a year earlier, showing how it has been forced into price increases. A few more price increases and it will be cheaper, and a lot easier, to stream video from rivals.

The new service will be a pay per view and pay to buy service, so more like iTunes than Netflix, but that will require Redbox to get its hands on more up to date movie content, although perhaps not so much of it. Many OTT movie services have been constructed from 500 or so movies, often on exclusive deals but always quite close to the theatrical release.

Such a move will put it into direct competition with pay TV movie services, which are usually sold more as an SVoD service, as well it competing with live pay per view VoD on cable. But this must be because of the disappointing level of interest it experienced to a subscription model at Redbox Instant.

Redbox issued the following statement, “Redbox continually looks for ways to enhance our customer experience. For tens of millions of consumers, Redbox is their source for new release rentals without a subscription. As such, we regularly conduct tests of potential new offerings, that may or may not be brought to market, as part of our ongoing commitment to provide additional value.”

Variety said that the new service will go under the name Redbox Digital, and the company’s plans a closed beta shortly. Redbox Digital is being built as a VoD store similar to iTunes, Vudu and Google Play, offering both rental and purchase.

Plans include a tight integration with the existing Kiosk service, with free rentals being accrued through the Redbox loyalty program and the same mobile app being used for the kiosk service and the online one. Apps on Chromecast and Roku are also planned.

This is the last chance saloon for Redbox and if it wants to avoid a slow and painful death, it will have to put everything it has into this venture. We expect to write another story very like this about revenue falls a year from now.