Stop me if you’ve heard this one before. Media moguls are upset that a new method of bringing their media to the consumer has snuck in under their radar, and it is threatening to undermine their entire industry.
Those fiendish entrepreneurs are practically giving that media product away, undercutting the content providers’ entire revenue stream and devaluing their product in the eyes of the consumer. If they are not stopped, it could mean the end of that media industry as we know it.
I could be talking about Rupert Murdoch versus Google News, or the book publishing industry versus Amazon’s Kindle. But as you’ve probably guessed from the headline and picture, in this particular instance I am talking about Redbox, the DVD rental kiosks that are popping up at McDonalds and grocery stores across the country.
A Disruptive Business Model
Redbox’s business model involves renting new-release DVDs for $1 per day out of these kiosks. Consumers check them out with their credit card, and Redbox charges the card $1 per day until the bar-coded DVD case is returned. When the movies leave new-release status, the kiosks sell them used.
Redbox is currently in a legal dispute with Fox, Universal, and Warner over the studios instructing distributors not to sell their movies to Redbox. The studios are concerned that the $1 rentals devalue their movies and cut into their revenue (as well as harming rental stores, who cannot hope to compete on rates with the much lower-overhead kiosk locations).
Also, the studios see the flood of titles that cycle out of new release into the used market (much earlier than is usual from rental stores that have the space to keep a longer tail of new releases) as harming new sales of those still-recent titles.
Consequently, Redbox buys these studios’ titles via retail stores—though many retail stores limit the number of copies of a single movie that one person can buy. (And so Redbox has added Wal-Mart, Target, and Best Buy to its lawsuit as well.)
Disruptive Innovation
The latest development, which reminded me enough of what we have seen in the e-book and e-journalism industries to prompt this story, is a report (PDF) that has come out from the Los Angeles Economic Development Corp.
Said study predicts Redbox will be responsible for a $1 billion loss to the movie industry, and over 9,200 lost jobs. However, as Chris Albrecht at NewTeeVee points out, the LAEDC is not exactly a neutral observer.
Redbox represents a prime example of what is called “disruptive innovation”. There have been many such examples in recent history: the VCR, the MP3…and Google News and the e-book.
And that history keeps repeating itself. Despite the examples left behind by all the industries that have gone through this before—including the movie industry itself with the advent of the “Boston Strangler” VCR—the film industry is still making the classic mistake of trying to fight to protect its old business model instead of figuring out how to adapt to a new one.
Lessons to be Learned
This is a lesson that the publishing industry is going to need to take to heart. Whether Amazon is losing money on most Kindle books, or many, or just the most popular ones, the fact is that Amazon is getting its customers used to paying only $10 for e-books that other vendors are forced to sell for much more.
This means that sooner or later the publishers are going to have a rebellion on their hands. Amazon is not going to sell its loss-leaders forever.
And we are already used to reading most news stories for free on the Internet. Rupert Murdoch is going to have a hard sell getting consumers to enter through his paywall.
History shows us something else, by the way. If you look at the list of disruptive innovations in the link above, you will see that sooner or later, the disruptive innovation usually wins.
(Picture sourced from Wikipedia, by Nate, used under a Creative Commons Attribution/Sharealike license.)
