"It's not personal, Redbox. It's strictly business." -Walmart
The recent, much-publicized moves by retail giant Walmart and other retailers to limit quantities on new release DVD purchases may or may not be the products of collusion with studios, but could definitely be in the stores’ best interests. So says Pali Equity Research analyst Richard Greenfield in a recent Home Media Magazine piece. The article also suggests that the recent suspension of operations by kiosk operator e-Play was at least in part caused by Walmart’s ejection of the kiosks from their test locations.
Here’s what Greenfield had to say about the possible reasoning behind the new quantity restrictions, using Walmart as a specific case:
“We believe Wal-Mart has facilitated Redbox’s workaround efforts over the past year mainly due to the return store traffic. . . Initially, those benefits to Wal-Mart far outweighed the cannibalization Redbox was having on Wal-Mart’s retail DVD sales at the back of the store. However, as Redbox grew exponentially as a consumer brand and with consumers learning that they could rent from one Redbox in a Wal-Mart but return to another location (where they do not even need to go into a store, such as a 7-Eleven with the Redbox sitting outside), cannibalization has grown and the return-trip benefit is slowing.”
Thus, says Greenfield, it is in Walmart’s and other retailers’ best interests to do what they can to limit the competition that a rental kiosk in front of their locations gives to their DVD sales business.
Greenfield’s theory is an interesting one and one that has been tossed around before. Over to you, Insiders. Do you still suspect studio involvement in the quantity limit policies that have been put in place recently, or are they just good business moves by retailers trying to preserve a revenue stream?
(via Home Media Magazine)
I don’t buy his theory because buying and renting a dvd is not the same thing.
I agree. Someone is either going to buy a dvd or rent it by their own choice. No matter what they do they aren’t going to be able to change someone from wanting to rent a dvd into buying it instead. I think the movie execs and people think people are stupid and/or like sheep and think people will do what they want which isn’t the case. In fact it’s the opposite. You tell someone to do something and naturally they are going to go against it.
If wal-mart didn’t want Redbox to thrive they would not have put them in the stores. By putting them in they pressure the studios to settle. By limiting purchases they pressure Redbox a bit more. Perhaps they are encouraging a settlement. How in the world would someone figure out that the return trip benefit is slowing? Redbox units are so new that most are still growing same store sales. How is the benefit slowing when most units are still growing customers? The other flaw is that the DVD space is not a driver of profits. It’s a very low margin sale so there is very little change in contribution from lost DVD sales. Redbox real estate is much more productive than DVD retail space. If wal-mart really was being harmed by Redbox those units would be out of there in about a minute. Since they haven’t been removed so far then by definition wal-mart must feel they are a net add.
I think these old media analysts are loathe to be seen making positive comments on Redbox for fear of losing their access to news, time and NBCU. That’s a driver of the negative comments here.
I always was skeptical of the claims that red box rentals necessarily hurt sales; if Walmart saw DVD sales being affected by the red boxes in front of so many of their stores (and they’d probably be far more capable of seeing that) they’d put the kibosh on the redbox problem.
I must be confused. Doesn’t Redbox buy the DVD’s in that same Walmart store in the first place? How does that hurt sales? Add in the fact that I haven’t seen a new release out of stock in Walmart yet and I just don’t buy this argument.
Wal-mart uses New Release DVDs as a loss leader in order to get customers into the stores where they buy other things. If they sell these new releases DVDs to Redbox employees, they lose money on each one sold plus if the person is renting the movie a week later after Wal-Mart has marked the DVD back up to normal retail, then Wal-Mart loses the potential sale of the DVD at a profit.
Make sense now?
No. Because I’ve never heard of anybody going to buy a DVD, seeing it in redbox first, and just renting it instead. As has been stated, buying and renting are different things. If you are a DVD collector, and you want to buy a DVD, you are going to buy it. Period. It doesn’t matter how cheap someone offers to rent it to you, you want to OWN it. On the flipside, if you are a renter and do not buy DVDs often, if at all, you are going to rent your movie. No matter how long these idiots make you wait, you will not just say, “aww what the hell. I’ll just buy it.” I believe people walk into wal-mart fully intending to either buy or rent, and then stick with their original decision.
Plus, this statement : “If they sell these new releases DVDs to Redbox employees, they lose money on each one sold…” is false. They make the same amount of money whether a regular person or a redbox employee buys it.
P.S. Although I do understand the general point that wal-mart sells movies cheaper in the first few days so those copies were getting bought at a lower price. But that’s still not a loss. Those are extra DVD sales. Rebox was not taking DVDs away from regular customers buy buying them. The guy coming in a week later still gets his DVD, and at the higher price. These were all extra sales. Gauranteed their total DVD sales will drop now, and the net profit from them as well. That’s not a win.
Exactly. If anything I think Redbox buying the DVD at Wal-mart helps them. Who goes and buys DVDs at Wal-Mart? If anything I see people who want to by DVDs going to electronics stores like Best Buy.
Everything stated makes perfect sense from Wal-Mart’s perspective.
The only benefit Wal-Mart was getting from having a Redbox out front was that not only did someone rent a movie from that machine but they were likely to return it to that machine within the next 2 days. The likelihood of that person spending money at Wal-Mart increased with their use of the machine.
Now that people no longer have to return their DVD to the Wal-Mart Redbox, the benefit of having them out front is not only at least halved but in reality dropped probably by 80%. It is the second visit that was valuable to Wal-Mart. The first rental benefit was likely miniscule.
I am not surprised to see this happening at all.
People never had to return it to the Walmart kiosk. Redbox has always been “Rent & Return Anywhere”.
Walmart is simply losing out on selling a couple hundred thousand dvds a week to Redbox. Why are they doing it? Who knows other than Walmart. It isn’t pressure from the studios, because lets face it, Walmart is a super power house compared to the studios. You would think if Walmart wanted the haggling to be over, they could easily throw their weight around and get what they wanted. Walmart is like Oprah. They say jump, everyone else shouts “How High?!”
It’s not about “rent and return anywhere” it’s where the kiosks are. The closest kiosk to my job is Walmart. The closest kiosk to my home is a supermarket, but it’s maybe 7 months old… before that it was another Walmart. That I don’t have to go to Walmart to return a movie I rented at lunch time is exactly the phenomenon being discussed.
We have a lot of them over here. There’s some places where you’d have 3 or 4 Redboxe all on the same corner all across the street from each other.
Wal-Mart lost money on every DVD they were selling to Redbox on streetdate because they use DVD as a loss leader (as indicated by an earlier post). The last thing they want to do is supply a company that is stealing sales from them and no longer providing them with return visits.
This does not bode well for Redbox at all.
Hollywood,
Can you prove this?
‘The last thing they want to do is supply a company that is stealing sales from them and no longer providing them with return visits.’
How is it possible that return visits are no longer being provided? Why wouldn’t wal-mart benefit from return trips from a pick-up somewhere else?
I suspect that if it wan’t true then Wal-Mart would not have taken the steps that they did.
Wal-Mart knows what happens in their stores down to the nth degree. They will have the data showing that Redbox is no longer providing the benefit it once did. And if you look at it rationally, it is only common sense.
So you have saying that Walmart is upset about not losing a couple hundred thousand a week to Redbox? If Redbox paid normal wholesale instead of Wal-Mart pricing, they would be paying an extra $500,000 a week I imagine.
Wal-Marts loss leaders are not intended for the benefit of Redbox.
Please explain what you think the meaning of “Loss leader” is. Because a loss leader is something that a company gives away at cost to entice a customer to come into their business and buy additional items. When redbox purchases dvds from walmart for $20 each, and Walmart’s cost on that dvd is between $4-$10 depending on title/studio, please explain to me how you think that that is a ‘loss leader’.
LOL, you actually think the cost of DVDs is that much? How about you get a business license and then contact a distributor to see how much they cost.
There is a reason why some small video stores purchase their rental product from Wal-Mart and that is because it is cheaper than buying them wholesale.
That is the reason why you see Wal-mart selling the title cheaper during the first week of release and then raising the price to the normal level. The first week or few days depending on location, are the loss leader just to get customers in the store and then after that, it goes to normal retail pricing.
I’ve never seen the price of a new release go up at any Walmart I’ve ever been to, though I’ve seen them go down over time.
Better do your reseach on Wal-Mart they set the price that there willing pay from there suppliers or they won’t buy it. A few year back they were selling mattel toys cheaper that what Toys-r-us could buy at there cost. And far as the cost of dvd we all know there dirt cheap just the markup you have to pay for some CEO’s salary. Yea I know the movie made million at the movie threater but it still didn’t cover the cost of making the movie. It’s funny how BlockBuster express and Movie gallery offer a dollar a day rentals know.
Guys, really, if you don’t know anything about the business world, then you really shouldn’t spout off.
It is well known that Wal-Mart uses DVD as a loss leader to entice customers in to their stores.
It is also well known that if you go into a Wal-Mart 2 weeks after the DVD has been released, that DVD will cost you more.
If you want to live in a world of denial, go ahead. Some of us are trying to explain how this industry works to you. I know most of you just want movies for free but really, when information is provided to you, you might want to pay attention.
NO Way is wal mart right… I am just the opposite I go to walmart to pick up all of my food FIRST then I pick up a movie while I am there. SO no sorry walmart you are wrong.
RedBOX is the next best thing.THANK YOU REDBOX FOR MAKING OUR LIVES EASIER AND CHEAPER IN MOVIE NIGHT
Walmart Sucks! That is all I have to say at this point. Stay tuned for an exiting new comment!
I know for a fact that DVDs are that cheap because I am a DVD buyer for a brick and mortar store and I know how much of a discount WE get them for and we aren’t near as big of retailer as Walmart. We buy ours for 40-50% less than retail stores sell them for, and I am sure Walmart has a far better deal that us. Mom and Pop stores don’t do the volume needed to get substantial discounts, that is why they buy from Walmart. Get your facts straight, get out of junior high then come back and post something else.
Do you revenue sharing withe the studios ?
Do you get them from Rentrak ?
If your doing any kind of revenue sharing, then you’re probably getting them cheaper.
If you’re not revenue sharing, then you’re just full of sh!t.
You don’t get movies at 40 or 50% less. New movie cost about $18.89 each for the Big movies, we have 7 stores we get them from Ingram one of the places Redbox gets movies from. And I do go to Wal mart to buy when they come out at around $15.99 each.
tinybrat does not have his facts correct.
He is either confusing revenue sharing terms which do not allow for selling of the DVD in the first 28 days or his store is buying bootlegs in which case he is a crook.
Yea Walmart stinks!
This whole concept that wal-mart is no longer benefiting from a return trip is silly. Maybe 1/4 of DVDs are returned at a different redbox but that would benefit wal-mart about as much as it would hurt them. Unit revenues ramp over 4 years, so how would an 18 month old unit at wal-mart not be bringing in more drop-offs?
I believe wal-mart sells new releases for little if any profit so not selling a few hundred additional new release DVDs each work isn’t really a big deal. On the flipside that pricing strategy isn’t designed to facilitate the redbox business model. Hence the current compromise: wal-mart chooses to have redbox units in their store but probably is seeking to limit rapid sell through to redbox employees. Seems to me that the costs of getting the work around DVDs may go up but that it will be very difficult to keep them out of redbox’s hands. Redbox only has to find one way to get them each time while Hollywood has to block every possible way to get them. Seems pretty obvious that redbox with some delay will get what they desire. And again if wal-mart wanted to remove the units they could easily do that. I suppose if wal-mart did remove the units they would be inconveniencing a segment of their customers and would lose some of those incremental trips they are now receiving.
Consumers love redbox. It’s wal-mart and other retailers jobs to please consumers. This is why redbox has 20,000 units out working on super bowl sunday. Wal-mart probably wouldn’t mind a redbox/studio settlement. Their actions thus far point in exactly this direction.
Wal-Mart are the kings of data collection. If they say they are noy getting the same benefit then I believe them.
Well they are free to remove them. If what you say is true and isn’t just feedback from your local store manager then there is no reason to keep them in the stores. Seems to me though that the numbers wouldn’t support a meaningful decrease in return visits. And what would they replace the redbox space with?
If Walmart is afraid people don’t spend enough time in the store, move Redbox to the back next to the milk. That is the reason for the milk being back there.
Walmart has lost more business from me because they state that they match any price…until you ask for it. They want to see a local printed ad which only states “Low Price” so I also print out the Internet Ad for the local store that can be verified (if they insist) by calling the store, or better yet, check out the competition and just give it to anyone who asks for it (the price they guarantee to match). The price difference is usually less than $1. If they still argue, I just walk out and go to the competition.
Later, Redbox came along. So after an argument, I stop at Redbox on my way out. I should thank Walmart for convincing me that I didn’t want the movie that bad and it saves me money which I can use (later at Walmart) for groceries.
Redbox didn’t take away business from Walmart. Walmart’s inconsistent ‘price matching’ did. I used to buy all of my DVDs from Walmart, and I bought a lot of them!
Maybe it all depends on the manager for your local Walmart’s price matching. My local Walmart is excellent at price matching; you just go through the checkout with the competitor’s ad for a lower price and they match it without a hassle. I’ve even gotten bigger items like dvd players, etc. price matched at Walmart with a competitor’s ad. Walmart’s policy is not to match internet ads/pricing, or percentage off ads. Otherwise, a thumbs up for my local Walmart. Also my experience is that Walmart has to benefit from Redbox dvd return customers because myself like others return most Redbox dvds specifically to the Walmart kiosk to then be able to pick up/buy all the other daily living items needed (socks, food, baby clothes, pet items, etc) in one place– Walmart.