Why Your Local Redbox Kiosk Just Disappeared

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Redbox movie rental kiosk in a grocery store
John Greim/LightRocket via Getty Images
Don't be surprised if you're walking into a store and see an empty space where a Redbox machine used to be. Outerwall (OUTR) -- the parent company behind the once popular disc-renting kiosks -- is starting to scale back its operations after years of growth.

It was a rough second quarter for Redbox with just 169.3 million rentals of DVDs, Blu-rays, and video games. That may seem like a big number, but it was 9.3 percent lower than the tally a year earlier.

Outerwall blames Hollywood for supplying them with weak films. The new movies hitting the DVD and Blu-ray market during the period rang up 37.5 percent fewer ticket sales in North America during their theatrical runs than those released in the second quarter of 2013, and box office is a big driver for Redbox rentals. Nobody wants to rent what nobody wanted to see at the multiplex. Things were particularly hard for the month of June when just four major releases hit the video market.

There could also be a bigger trend in play here. Redbox was the welcome beneficiary of Blockbuster's demise and Netflix's (NFLX) move to shift emphasis to its popular streaming platform. Former Blockbuster fans, or those who were upset by Netflix's choice to sell its DVD and streaming offerings separately fell into the waiting arms of Redbox's automated kiosks. However, now that the post-Blockbuster gains have been absorbed, and the period of Netflix defection has subsided (the number of Netflix disc subscribers has fallen by more than half to 6.3 million) there's no more easy growth to be had for Outerwall's fleet of Redbox machines.

Another sign that the issue isn't just a bad few months of movies is that Outerwall now expects to close out the year with as many as 700 fewer Redbox kiosks in operation in the U.S. market. The net reduction of 500 to 700 machines may not seem like a lot for a company with more than 42,000 kiosks in operation. That's less than 2 percent of its stateside empire, but it could be the beginning of the end.

Shrinking your footprint isn't something you do if you think the slide in rentals was a fluke. We're streaming more content, and while the company formerly known as Coinstar has a Web-based media play, it wouldn't be a surprise if keeps closing more kiosks in the future if demand continues to dry up.

In the meantime Redbox is also entertaining a rental price increase later this year. It's hard to endorse that decision at a time when rentals are slipping -- but at the same time it's also hard to fault Outerwall for trying to milk the most that it can out of its DVD rentals while watching films on those discs is still something that people do.

Motley Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. Try any Motley Fool newsletter service free for 30 days.

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13 Comments

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fernerobin

Very few movies are worth the effort to even rent them....let alone pay the terrible cost of theatre addmission. FORGET IT...! We'll wait until it comes to TV , mute out the commercials, or just forget it altogether....!

September 22 2014 at 12:12 PM Report abuse rate up rate down Reply
alfredschrader

I went to theatrical school and to cinematography school. I'm an actor and a film maker.
Throwing millions at a film wont make it a success, the people who make the film are what make it a success. American Graffiti was shot for $200,000.00
Did you know it costs $50.00 to make a muppet character ? And $500.00 to make the muppet set ?
Or that you can create a Matte set for a $300.00 painting instead of using $4 million worth of materials ? And the Matte will be be far more ethereal.

September 20 2014 at 2:07 PM Report abuse rate up rate down Reply
elpasoworld

Now, WHY can't actors live on $200,000.- $300,000. per year?
Who in their right mind pays people Ten Million or 30 million for 3-4 weeks work?
Never mind, . . . . I just remembered NBA and NFL Football.
Well, Thats WHY the tickets are so much.
Maybe the Movie Theater should get 40-50% like most businesses, most retailers of a product.
And then the popcorn and drinks might be reasonable.
And the ticket prices could then be lower and gain more audience members.
And Babies and children. NO NO NO NO NO NO. Why cant the theaters NOT let in Children and Babies to Adult themed films?
Thats why we dont go any to movie theaters any longer: BABIES and Children in anything but Disney children's movies.

September 16 2014 at 4:02 PM Report abuse +1 rate up rate down Reply
Stephen

Redbox could offset this by adding more "Library Content" - Popular classic films that are "evergreen" and always do well in rentals.

September 16 2014 at 1:13 PM Report abuse +1 rate up rate down Reply
Paul

Never used DVD kiosks,haven't gone to the movies for at least 30 years. I can wait till movies make it to regular TV, saved thousands of dollars for gas,tickets,refreshments, HBO, SHO, Cinemax, ETC !!!!!!!!!!

September 15 2014 at 1:03 PM Report abuse +1 rate up rate down Reply
singlisa joy

Also those red box machines sometimes do not receive the dvd back and you have to drive all over the place to find another location. So they need to revamp their system. so true

September 08 2014 at 9:25 AM Report abuse rate up rate down Reply
MOONDOGGIE

lets not forget i heard that you can download any movie u want even if its still in the theater ,

September 02 2014 at 7:13 PM Report abuse +1 rate up rate down Reply
mikco99

Box office might be low due to crap movies and astronomical prices at the theaters. Super high prices for popcorn and candy don't help either. I stopped going about four years ago. I also don't want to contribute to the ridiculous salaries of the actors. Get a good book.

August 19 2014 at 9:35 PM Report abuse +1 rate up rate down Reply
jareksimek

Last Movie I rented from RedBox was GRAVITY. What BS. Totally Improbable. Yea, send Single Mothers into Space. Probability of failure is Multiplicative not Additive. Humans Get Above Troposphere and All S..t Breaks Loose. The truth is That When S.B. Landed on Terra Firma That could have been the begining of another more intelectually stimulating story - But Then Bradbury,Rodenberry,Asimov / Etc. are dead and irreplaceable. Contact with Jodie Foster was OK if Looney Sci-Fi.

August 12 2014 at 9:56 AM Report abuse -1 rate up rate down Reply
1 reply to jareksimek's comment
dgraham731

No one forced you to rent Gravity....

September 05 2014 at 3:33 PM Report abuse rate up rate down Reply
3 replies to dgraham731's comment