Redbox’s woes leading to a retreat from its Midwest HQ

Not as many people are doing this today.

Not as many people are doing this today.

by Dan Rafter

If you could stream movies and television shows right from your home computer or TV — not to mention on your tablet or smartphone — why would you ever travel to a Redbox kiosk to rent a movie?

That’s a question that might determine the fate of Outerwall. The Bellevue, Wash.-based company operates Redbox, the company that has placed all those bright-red DVD and video-game rental kiosks outside of supermarkets and inside stores such as Walmart and Meijer.

After all, the future of DVDs doesn’t look to be great. Remember when DVDs made VHS tapes obsolete? Streaming services such as Netflix and Hulu Plus are doing the same to DVDs.

This shift in consumer tastes is evident from the numbers: Outerwall reported in February of this year that consumers rented a smaller number of DVDs from Redbox kiosks in 2014 than they did in 2013. The decline was only 6.8 percent. That’s not huge, but it is the first time that Redbox DVD rentals fell from one year to the next.

In case you were wondering, here are the top Redbox rentals for the week of April 7.

In case you were wondering, here are the top Redbox rentals for the week of April 7.

You can bet that consumers aren’t watching fewer movies. They’re just streaming them instead of hustling to a kiosk to rent them. Getting a Redbox movie isn’t a big deal if you’re already shopping at a Walmart. But who wants to head back to the store to return the DVD once you’re done watching it? With streaming, you watch your movie and then forget about it.

The shift away from DVDs and toward streaming is a big deal for Outerwall. The company reported that more than 80 percent of the company’s 2014 revenue — $2.3 billion — came from its Redbox business. The company also operates those green Coinstar machines in grocery stores, the ones that count up your chain and print out cash vouchers or gift cards in return.

Outerwall, of course, knows that streaming services such as Netflix, Amazon Prime and Hulu are steadily killing the DVD-rental business. Major players such as Blockbuster couldn’t survive the onslaught of Netflix and its competitors. Is there any reason to believe that Redbox can?

Redbox did unveil its own streaming service, Redbox Instant. But the service offered too limited a selection, and did little to differentiate itself from other streaming companies. It’s little surprise that this venture failed. Outerwall shut down Redbox Instant in October of last year, and few outside the company mourned its passing.

Now Outerwall is making new moves, including a big one that will impact the Midwest. Redbox occupies more than 211,000 square feet in its headquarters building in Oakbrook Terrace, Illinois. That lease is scheduled to expire in July of 2021.

Redbox, though, is giving up more than 92,000 square feet of this office space, according to a recent filing it made with the Securities and Exchange Commission. The company will move out of that 92,000 square feet by July of 2016.

Outerwall said, in the filing, that it is moving more of its operations to Los Angeles. The company’s SEC filing said that the move was part of its “ongoing cost-savings initiatives” and a decision to move more of the company closer to Redbox’s movie and TV studio partners in Los Angeles.

These have been challenging times Redbox. Outerwall reported a decline in net income of 39 percent for 2014. And in February, the company announced that it was closing all of its Redbox kiosks throughout Canada.

Redbox still operated more than 43,600 kiosks as of the end of 2014. But it’s hard not to argue that things don’t look good for Redbox. It looks like the company might join the ranks of Blockbuster and Hollywood Video as victims of the online streaming movement.

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