Article

Redbox sets sights on Canada

Will the retail giant push out the smaller competition?

May 28, 2012

Redbox may be late to the Canadian party, but it looks like the king of the DVD kiosk industry is planning a big entrance. It recently announced that it will begin piloting kiosks in June at Walmart and Couche-Tard convenience stores. Although the company hasn't released the number of initial deployments scheduled for the greater Toronto and Vancouver markets, there is "the potential for 2,000-2,500 in Canada over the next couple of years," said Marci Maule of redbox.

That's a big number compared to the 80 kiosks that Best Buy rolled out this year, and the 10 that Canada's Planet DVD recently launched. And don't forget about Zip.ca, an online DVD rental company in Canada that has shifted its focus to kiosks over its traditional mail-order business. It now has more than 100 kiosks with plans to deploy more, despite the fact that kiosks had just a 2 percent share of the $1.1-billion Canadian video rental market in 2011, according to Convergence Consulting Group. In the U.S, DVD kiosks have 35 percent of the market, and redbox has 37 percent of all physical video rentals. Canada is redbox's first venture outside the States.

The new interest in the Canadian DVD kiosk market may have something to do with Blockbuster's recent extinction and the store closings of several Rogers, a Canadian video chain.

"We feel like Canada now is ripe to do this and we feel like it's time for us to go there in addition to what we're doing in the U.S," interim president Gregg Kaplan, said last week at an investment conference, according to The Globe and Mail. "And given that there's already a couple of kiosk competitors and the brick-and-mortar folks have exited, the time is right ... we don't want to lose that opportunity."

Should the little guys be worried?

Although many would assume that a company as successful as redbox will have no problem conquering the small Canadian market, the local competition should not yet be totally counted out, said Soheil Samimi, president of iMOZI, a kiosk provider for the retail industry.

"Redbox's brand, and to a certain extent the general DVD kiosk concept, is still relatively unknown to the broader Canadian population," he said. "If local companies are able to secure high foot traffic locations, and back it up with the ability to invest and properly deploy a well-run DVD kiosk network, then they can be successful. This approach might require them, however, to focus on smaller niches and use a business plan that factors in some of the guerrilla marketing techniques beneficial in a David vs. Goliath situation."

One of those niche markets could be serving the country's French population, for example. Because redbox lacks experience with the Canadian and French cultures, it will have to learn how to market to them.

"Keep in mind that certain markets like Quebec, with its unique French attributes and dominant local media groups like Videotron/Quebecor, might represent a bit of a different challenge to redbox's entry," Samimi said.

The real estate game

Despite the fact that the local companies have, thus far, been allowed to grow in a virgin territory, the reality is that matching the scale and operations of redbox will be a challenge. Because there's nothing particularly proprietary about DVD kiosk technology, the battle among DVD kiosk companies will be over real estate, said Eric Chen, an associate professor of business administration at Saint Joseph College, who thinks that redbox's move into Canada makes sense.

"It's a smart move, because it really wouldn't require a relatively big rollout," he said. "Canada isn't a big market. If redbox can move quickly into Toronto on the east coast and Vancouver on the west coast, it can potentially capture a majority of eligible consumers in the country because that's where most of the people live.

"This is a real estate game. Redbox and parent company Coinstar are good at it."

The best strategy for the local DVD kiosk companies is to beat redbox at its own game by quickly deploying with reasonable scale, but that's probably not an option for smaller companies that don't have access to the same amount of funding as Best Buy and redbox, for example.

"Redbox is not in the position that it is by coincidence, and none of the local players come anywhere close to match its size and capabilities," Samimi said. "There is no reason to expect anything else from redbox than a successful replication of the U.S.-based model in Canada. They will select some of the best national real estate available in Canada and then deploy quickly to saturate the market with the right scale and logistics required."

Read more about DVD kiosks.