Netflix, the poster child of a company that created a totally new operating model in the video rental business by taking the store and the late fees out of the equation is losing market share. Blockbuster was the big loser in that one, and I talked about it a year ago with several people who shared my confidence that the Netflix market dominance would not last. Many of us we confident that Netflix would become the next Blockbuster as streaming media took off, giving Comcast the upper hand.
But it seems we were wrong.
It appears that Netflix was right that customers don’t need to go to the video rental store to get their movies. What we overlooked was something that the people who brought us ATMs and Cranium games figured out a long time ago, which is that if you take your product to where your customer has to go anyway (like a grocery store), it will sell if it’s priced right.
It seems a little company called Redbox is the biggest threat to Netflix (and maybe Comcast) though Comcast wasn’t mentioned in this article today. Redwho?
Today Redbox has more than 15,400 video vending machines (and continue to add about one an hour) that hold about 700 movie DVDs that they rent for $1 a day with no late fees. I am not surprised the $1 per rental fee with no late fees is appealing, but I am a little surprised that the model works, because you still have to return the DVD (and keep the selections fresh), but $154 million in annual sales can’t be wrong . . .
The Cranium games people put their games in Starbucks and of course now the ATM is pretty much everywhere, and that’s some great rethinking around product placement and getting into the head of the consumer and thinking about what they want and where. I do think there is a valuable lesson for other companies (or potential new companies) to ask if they should rethink where they put their products (and how they price them).
As an aside, the article also mentioned that Redbox is now owned by Coinstar, the company that has the “vending” machines that you take all of your loose change to and get cash back. This seems like a great and logical brand extension for Coinstar, both in terms of the machines, the locations, and the target customers, so bravo Coinstar. Though it seems hard for Coinstar to, umm, change now, but since Netflix has a reddish logo, it would make some sense to have a color other than red from a competitor, especially since Coinstar is (almost unavoidably) green. But hey, if the shoe fits. . .
-Ric
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