2. Background
30 million Redbox users, which is 11% 43,700 Redbox kiosks.
more than Netflix. 70% US population is within 10 mins
739 million rentals done in 2012 alone driving distance from a Redbox kiosk.
Avg. growth of 28% over the last 3 years.
In 2012, 80 million families are expected to have access to Internet.
Netflix current subscriber base is 27 million.
Redbox offering online streaming of content
3. Background
Rank Company Share
1 Netflix 82%
2 Amazon 22%
3 Apple 16%
Redbox Instant, in partnership with Verizon, will provide a wholesome
service to users by offering:
Anywhere, Anytime movie pick-up
• No longer manage online movie queues
• No waiting for DVDs to come in your letterbox.
• Option to choose between Blu-ray and DVD.
Subscription based unlimited streaming
Option to Buy or Rent latest titles for $0.99 onwards
4. Network Effects
Two-sided network
Joint-platform sponsorship
Ex-post multi-sided variety platform
Supply side offers matched with demand side preferences
5. Network Effects – Our Model for Redbox Instant
Strong Network effects. Higher CLV by converting existing customers to Redbox Instant
Caveat 1: Redbox share is 35% of the Joint-venture
Caveat 2: For every customer converted, loss of $7 in CLV for kiosk rental business
CLV for Redbox Instant Joint-Venture
To be successful…
6. Redbox Instant – Joint Venture
• Envelopment strategy of bundling of DVD through kiosks and
Online Streaming (Eisenmann, Parker et. al.)
• Subscriber based compensation for Studios
7. Redbox Instant – Bundling
• Bundling with Verizon’s FiOS TV (4.7 million users)
• Enhanced network effect for Verizon
8. Redbox Instant – Bundling
• Envelopment strategy of bundling of DVD through kiosks and
Online Streaming
• Subscriber based compensation for Studios
9. Redbox Instant – Pricing
Pay-per- DVD Devices
Company Plans
view Delivery (not supported)
Streaming only: $6
Redbox Instant Streaming + 4 DVD: $8 $0.99 + Kiosk Wii, PS3, Streaming Players
Streaming + 4 Blu-ray: $9
Streaming only: $8
DVD only: $7.99
Netflix Blu-ray only: $9.99 N/A Mail -
Streaming + DVD: $15.98
Basic (with Ads) : $0 Blu-ray players, Internet
Hulu Hulu Plus (with Ads) : $7.99 N/A N/A TV, Home Theatre
Amazon Amazon Prime: $79/yr $2.99 + N/A PS3, Apple TV
10. Redbox Instant – Conclusion & Recommendations
Competitive Pricing
Joint Venture with Verizon Lower Risk
Unmatched Offering : Unlimited Streaming + Pay-per-view option + Anytime Delivery Pickup
Penetrate by capturing 41% users : WTP < $5
Bundle with Verizon
Support all internet enabled devices for streaming content
Ex-post since identify is not known prior to the transaction. There is a search by subscriber before selection of titleValue from each sponsor Verizon streaming networkRedbox has kiosk network
Total Market Size = 116 million (number of US households, 2012) Churn rate = 17% annual, Retention rate, r = 83%Discount rate = 10%Lifetime Value calculation = (Net Income per subscriber) * (1 + d)/(1 + d – r)Net Income per subscriber = (Revenues – Cost of Content – Marketing and other expenses)/(Total number of unique subscribers)Redbox currently has 30 million subscribers. Model assumes customers to switch
The Redbox Instant, joint venture (Redbox 35% & Verizon 65%) is a platform for content providers and viewers. The unique advantage to the viewers is the ability to get to a physical location to pick or drop in a DVD and convenience of online streaming. Further, the model used by Redbox with content providers is different than the major player Netflix. It compensates studios based on the number of subscribers instead of making a large upfront payment. These advantages will serve as a competitive edge against the existing players. Based on Eisenmann, Parker et.al’s proposition that given a target platform market sheltered from standalone entry,an entrant that bundles a weak substitute platform is most likely to succeed when bundling offers significant economies of scope.
Verizon has its own streaming infrastructure. It has 4.7 million subscribers of its cable offering- FiOS TV (source: 10K). Redbox has an estimated 30 million customers. Redbox Instant, based on the beta subscription estimates a total of 35 million customers by end of the year 20131. Redbox instant has deals with major media house. Films from Lions Gate (LGF), Paramount Pictures, Warner Bros, Universal Pictures, Sony Pictures and Relativity Media will be available for purchase and on-demand rental (Source:2).
Where ΠR is the profit of the retailer (Redbox Instant)p1 is the price of product1 (Redbox Instant’s DVD and Online Subscription)p2 is the price of product2 (Verizon FiOS’s)pB is the price of the bundled productw1 is the cost of product1 (Redbox Instant’s DVD and Online Subscription)w2 is the cost of product2 (Verizon FiOS’s)Q1 is the number of subscribers for product1 (edbox Instant’s DVD and Online Subscription)Q2 is the number of subscribers for product2 (Verizon FiOS’s)QB is the number of subscribers for the bundled product ( Verizon FiOS and Redbox Instant)