Is Redbox Going Big Game Hunting?

There may soon be more than just $1 DVD rentals coming out of your local Redbox kiosk.

Coinstar's (Nasdaq: CSTR  ) popular automated machines may add video game discs to their arsenal, if developers play along. Many movie studios have been staunchly opposed to the Redbox rental model -- arguing that cheap rentals are killing retail DVD sales -- but software developers may be more amenable to the Redbox model.

"If you look at movies and music in some ways, resisting new business models has not been a great formula for success," THQ (Nasdaq: THQI  ) CEO Brian Farrell is quoted as saying in a Reuters article last night. "One of the things I like about our industry is we tend to think, 'We have to adapt to this change.' So it's part of our DNA."

Redbox has been testing out the concept since August, offering up video games for double the DVD rate. It's a slick move, because those $2 daily charges can add up in a hurry.

Video games aren't like movies, of course: You can't consume them in a passive two-hour sitting. It may take several days before a gamer is satisfied enough to set aside a particular title. Yet that could be an advantage. Game rentals may actually stimulate sales, since a hurried renter may return the game quickly to avoid extra daily charges and just go out and purchase the game. If a game is good enough, rentals can only help.

Video games are a logical evolutionary step for Redbox. Now that NCR (NYSE: NCR  ) and Blockbuster (NYSE: BBI  ) are expanding their realm of competitively priced Blockbuster Express kiosks, Redbox can't simply stay the course.

Blockbuster has been offering DVDs and video games at its stores for ages. Netflix (Nasdaq: NFLX  ) has resisted the urge to follow GameFly into rentals, but it may have to if everybody else is hopping on the trend.

The arguments against game rentals are that the titles cost a lot more than movies. Many games also have limited shelf lives, like Electronic Arts' (Nasdaq: ERTS  ) annually updated EA Sports franchises. However, Redbox has been doing this long enough to know the math. It can stick to stocking its kiosks with titles that can recoup their costs quickly or offer games that will have lasting appeal.

Either way, the games are coming. If other publishers have their heads screwed on straight, like THQ's Farrell, it appears that the studios will be a part of the solution this time.