Redbox pushing freebies in Canada as it bets on more life in DVD rental business

Ron Cihocko of Redbox holds a DVD

(Carlos Osorio/Toronto Star/Getty)

TORONTO – Unlike other companies that have abandoned the physical media market, Outerwall is betting there’s at least a few years left to make money renting out DVDs and Blu-rays.

The U.S.-based vending machine company, which operates the Redbox video rental kiosks and Coinstar money exchange machines, is trying to get Canadians reacquainted with the old routine of popping out to rent a movie.

And the company is offering Canadians some freebies to give the rental machines a try. Lots of them.

New customers get a free one-day rental, all customers can take a home a free movie on Thursdays — every Thursday — and after Christmas, consumers will be offered yet another free offer, says Redbox president Mark Horak, who admits growth in Canada has not met expectations.

The company operates nearly 1,400 movie-rental machines across Canada and more than 42,000 in the United States. Redbox had hoped to have twice as many machines in place in Canada by the end of 2013, but Horak concedes the company is still trying to build brand awareness here.

“Redbox is the dominant physical rental location now, we’re just not in Canada to the extent we could be,” says Horak.

“There’s a lot more emphasis right now on promotions than on new installations but we’re still doing both. The promotions we’re running right now are very aggressive.”

Once a busy fixture in just about every city and town, video rental stores began losing customers as high speed Internet access became commonplace and consumers found it easy to stream content without having to leave the house.

The Canadian launch of Netflix in September 2010 accelerated the decline of the local video store. Blockbuster exited Canada a year after Netflix moved north and Rogers closed the last of its video stores in the spring of 2012.

Redbox’s vending machines then began springing up in Canada, offering consumers access to new releases on DVD for $1.50 a day or on Blu-ray for $2 a day.

“We give a great value to consumers who don’t want to wait (for new releases to hit Netflix) but don’t want to pay,” says Horak.

“You can rent three movies from Redbox for basically the price of one download through (a TV company’s video on demand service) or via Apple on iTunes. You can actually get six movies at Redbox for the monthly subscription of some (streaming) services that don’t have new releases. That seems like a pretty good value.

“We offer the value, the new releases. Digital might be more convenient but you pay for it.”

Horak says Redbox’s low overhead helped it thrive even as video chains were going out of business.

But Redbox is now seeing serious declines in its rental volumes.

In its most recent third quarter earnings release, Outerwall reported that Redbox’s rental numbers had dropped by 13.7 per cent in a year, although they still totalled more than 172 million transactions.

“Physical media, I think, is going to be around for many years,” says Horak, while admitting “you’ve got shifts happening in the market, you do have a shift from physical to digital at a macro level.”