Video disks have the first sale doctrine...so whoever buys one can resell, rent out, and loan out without paying additional fees to the content owners. It's very expensive to buy digital rights for new releases...VOD prices are like $4 for new standard def releases and the content owners get like +60% of that revenue. the most important part of the DVD rental market is new releases.
Wholesale, CSTR can purchase DVDs and blurays cheaply and keep renting them out until they break. average transaction price * #transactions makes it worth it. Netflix is dropping the ball on its dvd business. bricks and mortars are exiting.
This idea that digital streaming is going to completely replace dvd rentals in the next 10-15 years is bogus because of the structure of the industry. the VOD rights for new releases are simply too costly for a company like netflix to stream as part of the main service. they can only buy a few at a time. and VOD a la carte is too pricy for consumers (>$4 per rental vs $1.2 for cstr). CSTR can deliver the same content to consumers as VOD for cheaper because of their kiosk model.
Streaming is good for mobile devices if you're travelling or on the go a lot. At home, I prefer a disc. Less hiccups, and no weird effects from the compression required for streaming. If Redbox could perfect a drive-up kiosk, they would extend their dominance. Stores with employees can't compete with internet reservation and the ubiquity and inexpensiveness of kiosks. I also foresee a day when people with tablets may choose their wireless provider for internet access and forego home providers like Comcast and ATT.
The 'drive up to the kiosk' method was tried in the early days when McDonalds was involved. Kiosks were put in the drive up lanes at several McDonalds. Unfortunatley they caused long lines of cars. They had them in the stores, outside and drive-up. It was becoming too successful and McDonalds was distracted so they came to the conclusion that they needed to focus on hamburgers and not DVD's. Hence practically giving their share away to coinstar. The host location wants you IN their store. Outdoor is a compromise. Drive-up is a challenge.
Great post. I think most people forget that issue with the price of new releases is not the tech, as it already exists. The issue is cost, i.e., the price the content ptoducers charge the middleman. Until the content producers drop the price of recent releases via electrons A LOT, kiosk rental will keep winning.