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Is Redbox Killing Hollywood?

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The Los Angeles Economic Development Corp. has a scapegoat for the meandering state of DVD sales. Coinstar's (Nasdaq: CSTR  ) Redbox kiosks are apparently the culprits killing Tinseltown, a $1 rental at a time.

By the industry group's math, every $1 billion in lost rental and retail revenue results in a $520 million hit for the motion-picture industry. If consumers are bypassing pricier rentals at the local Blockbuster (NYSE: BBI  ) or sidestepping actual DVD purchases in pursuit of cheap Redbox rentals, Hollywood's very livelihood is apparently at stake.

The group's argument against Redbox is that if the kiosks are allowed to spit out nightly rentals for a buck at the same time that flicks hit the DVD market, consumers will gravitate to the cheaper product and shatter the DVD's value proposition. Redbox further weighs on celluloid's price tag, the argument continues, by dumping its tired inventory on the used-DVD market.

I don't buy the study's conclusion.

For starters, if Redbox were truly making a dent in the perceived value of filmed entertainment, why are multiplex exhibitors clocking in with record results? If consumers knew that waiting would translate into even cheaper consumption, wouldn't movie theaters be dead? Even with Redbox's vending machines, Netflix's (Nasdaq: NFLX  ) streaming at no additional cost for subscribers, and even Blockbuster's decision to get into the kiosk game through NCR's (NYSE: NCR  ) Blockbuster Express, the glut of content isn't putting much of a dent in the theatrical-release window. There's also the fact that the average Redbox rental sets viewers back $2 for two nights, not just a single buck.

Instead of blaming Redbox exclusively for the waning appetite in DVDs, let's call for a police-station lineup.

  • Let's blame Comcast (Nasdaq: CMCSA  ) and other cable providers for loading up on free on-demand content to keep subscribers from bolting.
  • Let's fault the studios for flooding the market with older catalog titles as well as entire seasons of television shows.
  • Let's pin the tail on Hulu and Google's (Nasdaq: GOOG  ) YouTube for giving video consumers access to seemingly unlimited ad-supported eye candy.

Redbox isn't killing the industry. If anything, one can argue that it's supporting the industry. If the only choices were $5 a la carte rentals or the glut of ad-supported content, thrifty consumers would have sunk the industry a couple of years ago.

Studios may think they're doing the right thing by playing with release windows and denying Redbox fresh content. Restricting the kiosks to stale discs may seem to make sense, but it's only going to force the industry into the reality that its demise may have been an insider job all along.

Netflix is a Motley Fool Stock Advisor pick. Google is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz has been a Netflix subscriber -- and shareholder -- since 2002. He is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 10, 2009, at 12:37 PM, jb757 wrote:

    I agree with this article. Record box office results indicate that both worlds can live together - viewing movies at the local cinema as a traditional form of entertainment and renting any flick any time simply for convenience. The studios are always looking for another excuse to increase prices. I do agree though that there should be a normal delay in making newly released films available to the rental industry. This way, every one wins.

  • Report this Comment On December 10, 2009, at 1:50 PM, FracturedVision wrote:

    Study Being Promoted As 'Redbox Kills Jobs' Actually Shows That Hollywood Jobs Will Grow

    Hope this helps.

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