Recent News: Blockbuster to be delisted from the NYSE

Jared’s thoughts on competition in the movie rental industry:

Now that Blockbuster is essentially out of the picture, there are just two major competitors in the rental movie industry: Netflix and Redbox.  They each have very unique, but related business models.  They both want to keep customers coming back to use their movie rental service because repeat customers are cheaper than obtaining new customers.  Netflix prides itself in its recommendation system in keeping customers happy; it recommends movies based off of algorithms and user ratings.  Last year Netflix awarded $1 million for improved the recommendation algorithms and even posted the research online: http://www.netflixprize.com//community/viewtopic.php?id=1537

What I really want to see Redbox do is better compete with Netflix.  I want to see Redbox use the Netflix algorithms and recommend movies to consumers when they go to a kiosk.  Redbox doesn’t even need to have consumers create user accounts to receive recommendations, they can use consumer’s credit card as a unique key for each user and note what movies a user rented.   When a user returns a movie, have them rate it (1-5 stars seems to work for Netflix) before they insert the movie into they kiosk and then add that rating to their account. Each movie has a unique bar code on it so it can be easily be identified what user rented what movie and what their rating was.   It would be less burdensome than Netflix because you do not have to wait for DVDs to come in the mail and you don’t have to maintain your own user account its all automated.

Other suggestions for Redbox:

1. Create monthly subscriptions.  Redbox has significantly less costs than Netflix because most of their system is automated in the kiosk and there is no shipping costs.  I think its safe to assume that overhead is less for Redbox so it would be very profitable to have unlimited movie subscriptions, but only allow them to rent one movie at a time.

2. Build a streaming service.  Redbox can charge either per movie or include streaming with their monthly subscription.  This gets slightly out of Redbox’s comfort zone because their core competency is not in streaming , but one of Redbox’s core competency is dealing with movie rights owners to get distribution deals.  In my opinion, once you clear that hurdle, everything else is smooth sailing.