REDBOXPresented by:

Chet SouthworthKyle McLaurin

Joni Perry

Strategic Situation

• Gross revenues are up year after year.

• Market share almost doubled in 2009.

• Total rentals are up year after year.

Problem

Given a contracting industry with intense rivalry and fast-paced technological innovation, what strategy should Redbox pursue to increase it’s market share and earnings per share?

General EnvironmentDemographic

• 15 to 30 year olds with low to moderate disposable income.

• Tech savvy.

• Busy schedules.

• Place high value on convenience.

General EnvironmentEconomic

• Country in recession.

• Increased unemployment and under employment.

• Most people have less income.

• Cheap entertainment in higher demand.

General EnvironmentPolitical/Legal

• Increase in video piracy.

• Copyright laws have major industry impact.

• Contracting inductry faces anti-trust laws.

General EnvironmentSocio-Cultural

• Higher degree of instantaneous gratification.

• Convenience is highly valued.

• More tech savvy cunsumers.

• Wider variety of entertainment and comunication devices.

General EnvironmentTechnological

• Technology is having large impact on entertainment industry.

• Wider variety of entertainment and comunication devices.

• Industry has better tracking of comsumers entertainment habits.

• Technology rules the entertainment providing industry.

General EnvironmentGlobal

• Technology increasing globally.

• Video piracy skyrocketing in third world countries.

Industry Situation

• Big video stores chains are going bankrupt or contracting significantly.

• Entertainment industry getting more technologically advanced.

• Consumer demand for entertainment shifting from brick and mortar stores to alternate means of delivery.

Driving Forces

• Consumers greater demand for convenience and instantaneous gratification.

• Improvements in entertainment industry technology.

Key Success Factors

• Technology.

• Price.

• Library size.

Competitive Analysis

• Blockbuster is #1 in the industry due to it’s retail locations.

• Netflix is closing on Blockbuster due to it’s VOD and mail order delivery options.

• Redbox is well positioned as the premier provider of videos at kiosks.

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Comparative Market Positions

Geographic Coverage

Pric

es

Blockbuster

Redbox Netflix

Industry Profile and Prospects

• Industry is contracting.

• Demand within the industry is shifting

• Brick and mortar stores demand is declining.

• VOD, Kiosk and mail delivery demand is rising.

• Industry attractiveness is high for those in the VOD, mail delivery or kiosk delivery business.

Porter 5 Forces

Rivalry among

Competitors

Substitutions have

Medium Power

Buyers have

High Power

Potential New Entrants

haveLow Power

Suppliers have

High Power

Porter 5 Forces

• Buyers – Redbox does not appear to have a loyal customer base. Buyers seem to have high power.

• Suppliers – Redbox can be hamstrung by the suppliers. Major studios could require higher prices for movies, they could hold new releases until weeks or months after general release, they could refuse to allow rental until months after VOD release. Suppliers have a medium to high power.

Porters 5 Forces (continued)• New entrants – New entrants are unlikely to gain

traction in the market due to the high startup cost, the need to make deals with the studios to get licensing to distribute movies, the cost of the distribution locations and the cost of marketing against an established provider.

• Substitutes – Substitutes are unlikely to be a factor with the increase in consumers sedentary habits.

Porters 5 Forces (continued)

• Rivalry – Rivalry is very strong with Netflix moving towards digital downloads and Blockbuster moving towards Blockbuster On-line. Time Warner and Comcast are providing video on demand as are other cable companies. Rivalry power is very high and appears to drive Redbox management’s decisions.

Company Situation

Redbox found a market niche by creating a company that provides easy access to movies while customers are shopping or as they are leaving.

Value Chain

• General Administration – Relies strongly on CEO Mitch Lowe and Coinstar. A management team does exist, but it seems Coinstar makes all major decisions for the company.

• Human Resources – The company appears to have little focus on Human Resources. Kiosks are fully automanted.

Value Chain (continued)

• Technology – Redbox has strong, innovative technology with touchscreens at kiosks and the ability to reserve movies through multiple internet connected devices.

• Procurement – works with movie companies to receive entertainment made available through streaming and/or mail delivery.

Value Chain (continued)

• Inbound Logistics – Includes a lot of negotiation with Hollywood companies and increasing the Redbox library. Contracts included destroying the films at the end of the agreements.

• Operations – Maintains the technology necessary to successfully work and provide a fast service for consumers.

Value Chain (continued)

• Outbound Logistics – There is no late fee or due date, so consumers can keep movies as long they want, or can also just pay to keep the movie.

• Service – Redbox works to provide as much convenience as possible to its customers, by providing a large number ofconvienient locations, providing a high quality service through a relatively large selection at each kiosk and the ease of returning the disc to any kiosk, not just the one it was rented from.

SWOT• Strengths and Competitive Assets- Extensive number of

locations for providing movies, technology, advertising• Weaknesses and Competitive Deficiencies-

Relationships with movie companies, marketing costs, loss of subscribers, lack of video games

• Market Opportunities- Opportunities exist for both the VOD market, mailed DVD market, kiosk market, and video game market.

• External Threats- Movie companies, VOD & mail order company competition

Overall Business Situation: Strong

Company Profile

Overall, Redbox is in a good strategic position to increase market share and expand into other areas of the entertainment market.

Problem Analysis

• Strategic Problem: – How can Redbox continue to grow market share

and earnings per share in a contracting industry with intense rivalry and fast-paced technological innovation?

• Other Problems:– How can Redbox increase their numbers of

customers, continue expansion in current and other markets, and enlarge movie selections?

Alternatives / Evaluation1. Continue expansion of kiosk locations.2. Shift to digital video delivered by the internet.3. Move towards use of mail delivery of

entertainment.4. Merge or purchase Netflix and/or GameFly.5. Provide videogame rentals at kiosks.6. Create new kiosks called “Redbox Classics”

and/or “Redbox Games”.

Alternative Analysis #1: Continue expansion of kiosk locations.

Pros:• Using the current strategy

of studying the prospective location demographics, the company could continue the current rate of expansion.

• New types of locations could be added, such as within the lodging industry.

Cons:• Key locations must remain a

priority; otherwise, expansions could become cost-prohibited.

Alternative Analysis #2:Shift to digital video on the internet.

Pros:• Internet delivery tends to

cost less for the company.• More movie selections

would be available, improving customer satisfaction.

• Could supply packaged deals for consumers wanting to use both methods.

Cons:• Some people want to feel a

tangible object for their money (a physical disk).

• Some people do not have a computer.

• Will be in direct competition with Netflix, a much larger company.

Alternative Analysis #3:Move towards mail delivery.

Pros:• Alternate delivery system

that appears to work well for others and is preferred by some customers.

• Provides another way to saturate the market.

Cons:• Large start-up costs• Name recognition of Netflix.• Some movie studios have

restricted distribution of DVDs.

Alternative Analysis #4:Merge with Netflix and/or GameFly.

Pros:• Avoids the large startup

costs required.• Gets customers who prefer

mail delivery to kiosks.• Provides online access to

entertainment.• Gets into game rental

segment.• Provides a larger selection

of entertainment overall.

Cons:• May cost quite a lot of

money (premium) to purchase and existing profitable company(s).

• May lose corporate culture unique to Redbox alone.

Alternative Analysis #5:Provide videogame rentals at kiosks.

Pros:• Increased customer base• Increased entertainment

selections.• Higher revenues per

customer over time if charging more for game rental.

Cons:• Takes space away from video

library available at each kiosks.

• May require costs and distribution litigations with gaming companies.

• Will have to keep prices comparable to current rental offerings in order to have a competitive advantage.

Alternative Analysis #6:Create new kiosks

Pros:• Increase customer

satisfaction, especially since customers have already asked for classic movies.

• Provide a new variety of products without interfering with the original kiosks.

• Increase convenience and answers demands by deferring lines with multiple kiosks.

Cons:• Increases initial capital

costs.• May face more litigation

with movie studios and the gaming industry.

• Increases necessary square footage at retail locations, if all three kiosks were placed at the some locations.

Recommendation

• We recommend a combination of the alternatives, including to create new kiosks for movie classics and gaming, continue expansion of kiosk locations, and shift to digital video availability on the internet.

• The combination would allow a smooth transition of expanding products and services and increasing customer satisfaction and demand.

Recommendation Implementation

• To implement these strategies, Redbox should consider a three to five year plan.

• Immediately, the company can continue to expand in other areas. At the same time, Redbox can begin litigations with movie studios and the gaming industry to increase entertainment selections.

• Redbox would need to review consumer prices and ensure that all new services, whether in the kiosks or online, would have to be competitive with the larger corporations.

Any Questions?