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redbox: vending growth

redbox DVD rental stations at an area supermarket. hspace=4
redbox DVD rental stations at an area supermarket. hspace=4

Every year, Americans spend more than $7 billion to rent DVDs. An increasing number of those DVDs are coming from vending machines strategically placed at supermarkets, gas stations and drug stores. Most are owned by a company called redbox. Just two years ago, the company's market share was only 1%. Now it's up to 10% and is growing by the day. WFAE's Scott Graf reports: It's Friday afternoon, and Ryan Haimer, his wife, and two young sons are shopping at a Harris Teeter in Matthews. The Haimers pick up more than groceries. Often times, they pay an extra buck and take home a movie. "Today we have Revolutionary Road," Haimer says. "My wife picked that out - Leonardo DiCaprio. Last month Slumdog Millionaire fantastic movie" Haimer gets his movies from the store's redbox - a vending machine named for its shape and color - that sits at the front of the store, near the checkout. When he discovered the redbox about two years ago, he says he instantly became a fan. "I saw the movie rentals and we love movies entertainment for the kids. And was fascinated that it was only a dollar, it's convenient and I have to be at the food store anyway." "Once people try redbox, they don't go back," says redbox CEO Mitch Lowe. "They just love the convenience of being able to pick up the movie at a Harris Teeter and drop it off at a Walgreen's." Lowe's company, based in the Chicago area, operates about 170 kiosks in and around Charlotte, mostly at Harris Teeter stores. Customers can browse titles, using a computer-like display. Or, they can go online and reserve a title at a redbox nearby. Fast food giant McDonald's started redbox back in 2002. Today, it's owned by Coinstar, which operates those coin sorting machines at stores. In three years, redbox had about 900 kiosks. Now, it operates nearly 16,000 in 48 states. The success of kiosks comes at the expense of already-suffering rental stores like Blockbuster. Wade Holden is an analyst for the investment firm SNL Financial and focuses on the home video industry. "The kiosk rentals and the online, the Netflix type model, are really the only growth segments within the rental business," Holden says. " The traditional going to the store - that type of rental business is on the decline. And we've seen that with the number of store closures that both Blockbuster and Movie Gallery are reporting." Netflix is currently king when it comes to DVD rentals, but redbox has seen revenue grow faster than the online service. And Netflix CEO Reed Hastings noted the threat in a recent conference call with investors. "The rise of kiosk, $1 new release rentals has been notable. In exit surveys of canceling Netflix subscribers kiosk is more and more frequently named as where they will go now for movies. And by the end of the year, kiosks will likely be our number one competitor." But while redboxes are popping up all over and some stores are getting a second and even third unit, the service isn't perfect. Long lines sometimes form. And the kiosks only hold about 700 DVDs, most of which are multiple copies of new releases. That means stores and on-line services will always have deeper selections. And Holden, the analyst, is watching to see how well redbox can keep up with its growing popularity. "Would they be able to meet demand for what people wanna watch?" he asks. "Are they going to have enough copies of a certain film to make it a positive consumer experience to keep people coming back?" Holden expects redbox to continue growing over the next few years. He says the company could have a market share of 25% by the end of next year. Lowe, the CEO of redbox, says that is a lofty goal, but it's not out of the question. "If we continue to deliver a valuable service to our customers and all the potential customers, it could go higher. You know today, less than one-fifth of American consumers have even heard of redbox." Those who follow the industry think Video On Demand services could potentially slow and possibly someday, do away with DVD rentals from any outlet. But most analysts say that's at least a decade away. And in the meantime, expect to see more DVD kiosks - like redbox - coming to a store near you.