Legal Department – This depends on how many things actually go to court, most things are just letter writing, this would be one employee, and divide that by how many machines they have out there and it’s not a big cost.

Advertising – They don’t do much, I haven’t seen anything on TV yet. Advertising happens automatically because they are placed in locations with high traffic, in most stores they are right in the entrance. The promo codes are great free advertising.

Website and all the servers – Hardly nothing, pay some outside guy to create it and minimum to maintain. Server, maybe two or three max at $200 a month ea.

Accountants – All computerized so just two full time employees max taking care of all business accounting.

Add in $13,500 = Profit $26,500 yr

Not bad since you have all your overhead covered, employees are getting paid and now you have enough to spend on expansion and bonuses.

I bet BB doesn’t come out that far ahead at the end of the year. They have to pay much more location rent and employee overhead.

It looked like at the end you started inflating things to make your point.

This business is way profitable, go start your own today!

Radman: Not everything is explained in your post, either. First, Redbox has a buyback agreement with their vendors. That is stated in their lawsuit. So, they don’t put 45-65K in. They get a chunk of that back through the buyback agreement. Second, the machine is 20K once. After that, it is basic maintenance. They should easily be able to maintain the machines of a mid-size metro area with the staff of a single Blockbuster store, or less. I can also guarantee from the persistent lines at all the Redboxes in my area that they average a lot more than $50.00 a day. I’ve walked into Wal-mart and seen a line of ten or more people at a given moment.

So, is a machine a loss the first year? Quite possibly. Beyond that? Highly doubtful. It is a vending machine, pure and simple. Vending machines make good money because they are an efficient, low-labor distribution method, and this is a machine where the stock is re-used. Their rate is also not exceptionally low per day. Their per-day rate is higher than Blockbuster’s. It’s just that Blockbuster forces you to pay in seven-day blocks.

Reporting 18.7 Million in Profits in the 3rd quarter without explaining expenses is reckless.

I think that we are in agreement that each machine is averaging $37,000 to $38,000/gross per year currently and it’s going up with each customer it takes from the competition. Since each machine costs $20,000 they are covering the cost of these machines in the first year, but there is way more to this equation than that.

All these math calculations will be based off $38,000 gross per year and will be assuming the LOW END of costs.

What about the other costs? Redbox definitely has the advantage with fewer costs than a brick and mortar store, however they cannot avoid them all.

Credit card fees. Most credit card companies charge between 15 and 25 cents per swipe plus 1 to 2 percent. For simplicity let’s just say 12 percent. Since we have an easy $1 scale to work with we can safely say that the credit card company is taking $4,560/machine per year.

Foot Note: The credit card company is taking the swiping fee for all the freebies that are given out. In effect Redbox is paying 15 cents for every freebie they give out. I will not factor this into my equation though.

Insurance for each machine. No idea what this would cost but I’m sure it is over $250/year so I’ll use that.

Electricity – $100/year.

Cost per square foot retail – $20/per square foot. These machines take very little space, but not every store jams them into a corner, some actually leave a lot space for the consumer. Let’s just say $100/month. $1200/year. May have to disregard this since a lot of McDonald Franchisee doesn’t have an option, they have to put these machines in their stores and they do not get the revenues.

Business Phone and Business rate Internet. Granted these are shared fees, however most would be surprised how much more businesses pay for landline phones and Internet. Internet would be around $80/month and the phone would be around $100. I’ll just average it to $100 total. $100/month x 12 month = $1200/year.

Stocking of Movies – These machines do not fill themselves and there are over 10,000 of them. Let’s assume there is one worker per 40 machines working an average of 8 hours/week. That would leave 250 workers. Figure $12/hour with gas. 250 workers x 8 hours x 12 dollars/hour x 52 weeks. That would be $1,248,000 for those wages.

Maintenance of these machines. From what I’ve read in numerous blogs, this seems to be a very big issue. Maintenance is probably on the same grounds as the stockers except they would be paid more, but used less. I’m going to add another $1,248,000 but I’m sure it would be way more.

Rental Cases – Every Movie gets one and everyone costs them over $0.25/per. 10,000 machines, 500 movies per machine. $1,250,000 as a start up cost. I’ll come back to this one later since we have to figure out how many movies they put in each machine every week. 500 x .25 for startup each machine = $125.

Call Centers – These are very expensive to run, but since there is no clerk to help you out you will need these. Each call center has wages, rent, heat, insurance, maintenance, Internet, phone, office supplies, etc… These call centers work 24/7 365 days/year. You will need 4 workers per 200 machines to adequately cover the calls coming in. That would be 200 full time employees working for $10/hour. That would be $4,160,000 year. I’ll bump it to $5,000,000 factoring in insurance, vacation and temp service. This would equal $500/year per machine. Not going to add up all the costs of running the call center with all of it’s running expenses, I’m just going to give a very low estimate of $1 million to rent and run the call center. That averages out to $100 per machine.

Legal Department – This number appears to very large and getting larger with all the lawsuits. At 25 million that would equal a cost of $2500/year per machine in legal costs.

Advertising – Not sure what it is, but I guarantee it’s over $100 million/year. That’s a staggering $10,000/per machine a year.

Website and all the servers – I do not have the slightest idea. Is 5 Million a good number? I’ll go with it. Another $500/per machine.

Accountants – I think 5 million may be too low, but I’ll go with it. $500/per machine.

Membership fees for VSDA and other organizations. Not even going to factor that. Probably would cost around $25/machine though.

Travel,food and Airfare for representatives of Redbox. Go with a low estimate of $1 million for $100/per machine.

38,000 Gross/year per machine

- $4,560 credit card cost
- $250 insurance cost
- $100 electrical
- $1,200 rental fee for retail space
- $1,200 for internet and phone
- $124.80 for stocking
- $124.80 for maintenance
- $500 call center wages
- $100 call center expenses
- $2,500 legal
- $10,000 advertising
- $500 for website
- $500 for accountants
- $100 for travel
- For simplicity I’m going to add $3,241.40 for expenses that I’m obviously missing.

For a total cost of $25,000 before putting movies into the machines and this is a very low estimate.

$38,000 minus $25000 = $13,000.

Now we have to add movies. The expense of each movie is between $13 and $15 per.

There are 52 weeks of new movies. In order for Redbox to break even they cannot spend more than $13,000/year on movies. For that to happen I will divide 13,000 by $13/per movie and then divide that by 52 for number of weeks a year. That would only equal 19 new movies installed in each machine every week.

Now if Redbox’s report that they made 18.9 million in profit in the 3rd quarter alone that would mean each machine Netted $1890 in 3 months or $630 month. Even if I’m wrong this is an embarrassing number. Now apply my math from above and my calculator exploded with a negative number.

We can assume Redbox actually averages 50 to 75 new movies put in each machine every week. This would be a yearly cost of 33,800 and $50,700 and the entire math I did above would be pointless since it’s easy to see that grossing $38,000/machine and paying that much for the movies is not profitable.

Can Redbox eventually be profitable at $1 rentals? YES. But it comes at a very large cost to the industry in the form of lost sales and undervaluing the movie experience.

Every customer who quits buying because they can rent for nothing or next to nothing hits the industry at the core; The Studios. No Studios, No Movies. Get ready for the worst slate of movies to hit theaters ever. The studios are putting out less and keeping a lot of movies in the can. Rental outlets that offer more variety will be forced to close.

Looks like the studios may have pressured Netflix to get rid of previously viewed.

I’m reading between the lines and think that Netflix really didn’t want to get rid of previously viewed sales. I think they came up with a compromise to avoid a legal battle similar to RB.

http://www.gearlog.com/2008/11/netflix_will_no_longer_sell_pr.php

I know that Netflix is trying to calm it’s renters down by stating that are going a different way, but the timing of the change in correspondence with timing of the Redbox lawsuit makes bulbs blink in my head.

Previously viewed had to be a pretty good kick back for them, why get rid of it when you already have the infrastructure set up? Or is Netflix trying to leverage the Studios to slow down RB’s growth by accepting the terms that RB refuses.

Would you be unhappy if RB got rid of previously viewed to avoid your rental prices going up?

Especially since you are allowing a complete opposite point of view.

Not sure why, but they all got marked as spam by the system. I left one and deleted the rest of the duplicates.