Redbox

The home entertainment business is rapidly becoming a digital one, but Redbox is still capitalizing on those stragglers who prefer their movies in disc form.

The movie rental company now accounts for half of the DVD rental market thanks to its 44,000 kiosks across 36,000 locations, said Galen C. Smith, chief financial officer of Redbox’s parent company Outerwall, speaking Thursday at the Gabelli & Company Movie and Entertainment Conference in New York. In its fourth quarter, Redbox had a 38% stake in all movie rentals, including VOD.

Overall, the prospects for the disc market are not bright. In a study this week, PwC estimated that physical home entertainment revenue will fall more than 28% from $12.2 billion last year to $8.7 billion in 2018.

It’s not just Luddites that are driving Redbox’s revenue. The company is also benefiting from what Smith described as a “content advantage.” It offers new releases between nine to 10 months before they are available on cable or streaming services.

The relationship between Redbox and the major studios has historically been frosty. At one point, studios such as 20th Century Fox and Universal cut off access to their DVDs, claiming the low-cost rental service was hurting sales, and Redbox almost took Warner Bros. to court over access to its films. But the rental company said the relationship has improved, in part because its kiosks bring in more money for the studios per transaction than pay TV or streaming. He also argued that Redbox does not depress sales of movies.

“They’re renting it first, they’re trying it out, and then they’re going to buy it,” Smith said.

Redbox’s value to studios may soon be crystallized. Five of the company’s agreements with various studios are due up this year, three of which can be extended, Smith said.

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