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Tuesday, October 27, 2009

Why Redbox Terrifies Hollywood

Why Redbox Terrifies Hollywood
Dorothy Pomerantz, 10.26.09, 4:15 PM ET


It's rare that a new business comes along and freaks Hollywood out quite as much as Redbox has. The video kiosk was born out of McDonald's' new business development project, which launched such unsuccessful ventures as Ticktok Easy Shop, a convenience store in a vending machine.

But in 2004, Redbox took off. The kiosks are incredibly easy to use and movies cost just $1 per night, less than a rental at Blockbuster or a video on demand. Redbox is now owned by Washington-based Coinstar.

At first, Hollywood seemed happy to indulge the little start-up, but as Redbox has exploded (there are 21,000 kiosks at 7-11s and supermarkets across the country), studios have taken evasive actions. Universal, Fox and Warner Bros. now refuse to distribute DVDs to Redbox when they are first released. Redbox employees have been reduced to raiding local Target and Wal-Mart stores to stock kiosks. (See "Red Menace.")

President Mitch Lowe insists Redbox can keep buying at retail for as long as it takes the studios to understand that with DVD sales continuing to plummet (down 14% for the third quarter of 2009), Redbox might actually be able to help studios. Lowe sat down with Forbes to talk about Hollywood's fears, lawsuits and Redbox's plans for growth.

Forbes: What's your relationship with Hollywood like right now?

Lowe: It's misunderstood. Half of the studios love us and get the opportunity. We do a lot for our partner studios. We promote theatrical releases at no extra charge to the studios. There's a group who get that we're not cannibalistic. Our users are also film buyers. Studios that don't get it aren't basing their feelings on facts. We're trying to be patient. At some point they'll turn around.

But it's understandable that the studios would prefer someone buy a DVD rather than rent it for $1.

The studios say Redbox is hurting sales, but we're just a convenient scapegoat. People's shelves are full of movies. They're being more selective about what they're purchasing. And with our huge presence we can help promote films. For example: Management [staring Jennifer Aniston]. It didn't do well in theaters, but we promoted it heavily, and it made more in the first week in rental than it did during its entire theatrical run.

Do you offer the studios revenue sharing if they work with you?

Yes and copy depth, which means there is a minimum number of DVDs we will buy. Also, we only sell used copies of movies from studios that don't work with us. We destroy old copies from our partner studios.

And you're buying movies at retail from three studios right now?

We have a huge workforce out there acquiring product. We've perfected our methods with Universal titles so that by Friday we have machines that are fully stocked.

Isn't that kind of inefficient?

It is. We'd rather be paying the studios. We just want the same deal Blockbuster gets. We're prepared to continue doing this as long as it takes. We have the ability to open one kiosk per hour. The only way the studios can stop us is if they don't stock stores like Target and Wal-Mart.

Why not just charge a little more and give the studios more money per rental?

We pay the same money for the movies as Blockbuster--sometimes even more. So why shouldn't we charge less to rent? Maybe the question should be: Why doesn't Blockbuster charge less? The most amazing way to deliver movies to people is where they shop. We cut out real estate costs, and we've come up with a much more effective model.

So you think the studios are being emotional and irrational?

Historically, they have been. I dare them to show that we're cannibalizing their sales. Not one studio has gone public with any proof of that. They just assume that renting at a low cost hurts their sales.

What will you do when movie distribution moves to the Internet?

We survey our customers all the time to find out what they want. They're telling us they want more stuff like Blu-ray, catalog films and digital downloads. We are testing Blu-ray discs at different price points. In two markets we're testing games.

But isn't there a limit to how many discs a machine can hold? How much stuff can you add?

Each machine holds about 700 discs. We're trying to maximize space. In many locations we have two or three machines. It's a great way to improve service. One of the biggest challenges we have is lines. And when we have more machines, we can have more inventory. Initially we were thrilled to have lines, but now it's become something we have to figure out.

Friday, October 9, 2009

'Friends' of Facebook: Studio Marketers

"Couples Retreat” doesn’t hit theaters until Friday, and it hasn’t had any festival exposure to speak of. But the Vince Vaughn comedy already has more than 13,000 “fans” on Facebook grabbing production stills and video clips provided by Universal.
Better still, it’s got the fans taking all that stuff back to their own pages to share with their friends.
With the youthful, moviegoing audience watching less TV than ever, studio marketers have begun to aggressively mine what has quickly become their preferred media platform – the web.
These days pretty much every major release now has promotional ties to Facebook, MySpace, Twitter or the other online watering holes where movie-watchers congregate. (The marketers' preferred social network? Find out here.)
“This is a huge part of our marketing now … creating an account and building a fan base -- and a lot of what we’re able to do is free,” said Nicole Butte, VP of new media for Focus Features, who recently oversaw a social networking campaign for the Tim Burton-produced animated film “9.”
Huge is right.
Paramount's "Transformers: Revenge of the Fallen" Facebook page has more than 1 million fans, who will receive notifications of the title's Oct. 20 DVD and Blu-ray release.
Last weekend's box-office champ, "Zombieland," has more than 250,000 fans -- 10,000 of which have signed up to play a Java-based game that lets them "kill zombies all over the Internet" with objects including banjos. As with most movie game apps, those who sign up to play not only agree to share profile data, they also post a promotion for the film on their own Facebook wall every time they visit a Sony-sponsored site that supports the online game.
Meanwhile, for its micro-budgeted horror film "Paranormal Activity," Paramount hired San Diego-based boutique marketing firm Eventful to, among other things, create a social media campaign built around driving users to the film's site so that they can "demand" that the movie open wide. As of Thursday, "Paranormal" was one of Twitter's top 10 "trending topics."
As for “9,” an aggressive Facebook campaign allowed the studio to frame the movie’s mysterious subject matter and characters for a core group of film enthusiasts. Even better, the smaller group virally disseminated the information they’d gathered to a broader audience – long before expensive TV ads began to run.
Indeed, the intersection between social media and the movie business became apparent this summer, when Universal’s “Bruno” got off to a hot Friday-night start. Unfortunately, that film also highlighted the downside of the new alliance when it cratered precipitously the following day and never recovered -- the victim of same unfavorable, real-time tweeting.
Studio marketers at the time gave birth to a new phrase, the “Twitter Effect,” to explain how dissatisfied moviegoers armed with smart phones and social networks were torpedoing films even before they left the theater.
According to information released last week by former New Line interactive marketing guru Gordon Paddison, who is now an industry consultant, 73 percent of 4,000 moviegoers in a recent study have established profiles on social media networks. The study was underwrittten Google, AOL, Microsoft, Fandango, Facebook, Yahoo and
“This is just where the audience is now,” said David Singh, executive VP of creative content for Disney of the use of social networks by studio marketers. “Something like 70-80 percent of frequent movie-goers under 25 visit Facebook eight or nine times a day.”
Singh said Disney started experimenting with MySpace for the launch of dance film “Step Up” back in the summer of 2006, a time when the News Corp.-owned property was still the dominant social media platform.
In the spring of 2008, he said the studio became enthralled with Facebook, which, despite the growth in popularity of Twitter, remains the social media network of choice for movie marketers, based mainly on its robust content-sharing features.
At that time, Disney bought out Facebook’s gift store and filled it with plush toys from the Pixar hit “Wall-E” -- only to watch the offering become so popular that the site crashed.
Today, pretty much every Disney release has a robust Facebook marketing component, with the studio’s interactive marketing team spending what Singh estimates to be about 40 percent of its time and resources on social media endeavors.
In June, for example, before romantic comedy “The Proposal” embarked on a theatrical release that would ultimately net $290.4 million worldwide and counting, Singh’s team posted a “how well do you know me” quiz on the Sandra Bullock film’s Facebook page.
The movie’s 4,000-plus “fans” soon dispersed the quiz all over the network. Ultimately, more than 400,000 took the quiz, clicking through and exposing themselves to all sorts of information about “The Proposal” in the process.
“That’s really the power of social media,” Singh said. “You can build on someone’s natural excitement for something and get them to evangelize on behalf of your film.”
Indeed, the number of fans who actually come to a Facebook page are “just the tip of the iceberg,” Focus marketing president David Brooks told TheWrap. “People share what they found with the world. It’s way more interactive than the usual movie fan page.”
Brooks wouldn’t reveal how much money Focus is spending on social media at this point. “It’s not a lot of money,” he said. “But it’s a significant part of our plan.”
Of course, there is a downside to this bargain marketing, as “Bruno” proved.
Much like the early days of harnessing nuclear power, studios admit that they’re still not always in control of the online forums they establish.
In fact, things can turn bad. Fast.
One studio marketing exec, who spoke to TheWrap on the day prior to a recent major release said he was “fantastically thrilled” with the results of the film’s MySpace and Facebook campaigns.
His viewpoint changed dramatically when the film’s September premiere tanked.
“We hyped the s--- out of it on MySpace and Facebook, and as soon as the movie was made available to the public, that turned on us,” he said. “We saw it happening hour by hour -- people were telling each other on our Facebook page how BAD they thought the movie was.’
“As soon as the product is available in the marketplace,” he said, “the same campaign that you created to let everyone talk about it can kill you.”
Disney’s Singh agreed. “Audiences on these social networks tend to be really savvy,” he said. “They don’t want to be marketed to in the traditional sense. As we’ve seen, positive feedback can spread like crazy, but so can negative feedback.”