Redbox Rocking DVD Industry?

This article looks at the effect of Redbox kiosks on DVD sales nationwide, accusing the establishment of these machines of hindering movie sales and cutting into profits at rental stores like Blockbuster. It cites the availability, and price, of Redbox rentals as a leading force in a decrease in demand for DVD purchases. While Redbox is contributing to the reduction in DVD purchases, that is not the main impact of these dollar-per-night rentals. In fact, it could be argued that rentals in general are driving down the demand for DVDs, as consumers are more likely to simply rent a film for any amount of time as opposed to spending $20 to own it. This is because renting a movie and owning it are, in terms of comparing goods, substitutes. And since renting is cheaper accross the board, a higher demand will exist for them.

The real effect of Redbox, and other cheap rental providers, is felt at places like Blockbuster and Hollywood Video. These places are competing amongst one another in the rental market alone, and so have more direct stake in rental prices. Again, movies from Blockbuster and movies from Redbox are considered substitutes for one another, and the determining factor in demand for these movies is price. Redbox charges $1 per every 24 hours that the movie is away from the kiosk, while Blockbuster charges a few dollars, depending on if the movie is a new release, for five days. Depending on how long a consumer intends to hold onto the movie, either venue could be much cheaper than the other.

The article has a lot of bells and whistles worrying about how Blockbuster is in danger and Redbox is sweeping the market. As it stands, however, the firms are equally able to survive, as each has a unique consumer base. Besides, many Blockbuster stores are introducing $1 per night rentals in order to more directly compete with Redbox sales. Movie rental stores are going to stick around for a while, until online streaming plans like Netflix end up driving prices too low for the firms to continue to support themselves. In which case Blockbuster will still have streaming movies to compete on that front as well.