Could Redbox Crowdsource Its Way Around Movie Studio Blockades?

from the connecting-with-fans dept

Tue, Oct 27th 2009 8:02am — Mike Masnick

Last week, we wrote about the legal battle Redbox is facing with some of the movie studios. Redbox, of course, rents DVDs at a $1/rental from vending machines that it places all over the place. Some of the studios are upset that (a) they don't get a cut of each rental and (b) that Redbox also sells those DVDs. So they've been trying to force Redbox to sign agreements that would give them a royalty cut and which would put limitations on Redbox -- such as not renting out videos until well after the DVDs are released and also having the company destroy, rather than sell DVDs when they were done renting them. Of course, the labels don't have much of a legal claim here. Redbox has every right to buy DVDs and to then rent them (right of first sale and all that). But, what at least some of the studios have done is to demand that DVD wholesalers not sell to Redbox, which certainly seems like a typical restraint of trade situation. In at least one case, a studio has also told downstream retailers, like Walmart and Best Buy not to sell to Redbox either.

Now, you might think that Redbox could just send employees into those stores without saying where they're from, but those stores probably don't carry enough stock for Redbox to buy enough DVDs efficiently. But what if they did something different? In the comments to that post last week, our rather insightful community started suggesting ways that Redbox could get around the sales blocks from studios by crowdsourcing the acquisition of movies.

There were a few different suggestions on how this could work, but the basic idea, presented by commenter "McBeese" laid out the basics:

Consumers open online accounts with Redbox. The account contains a Paypal id for deposits.
Redbox publishes how many copies of each DVD that they want.
Joe Consumer buys the movie, watches it, and then logs in to the Redbox site and 'pledges' the DVD. Each pledge automatically reduces the amount of a particular DVD that redbox is seeking.
Joe consumer mails in the DVD with an associated pledge number. When the DVD is received, the agreed amount is deposited into Joe Consumer's account.
A little slower than buying in bulk, but unstoppable.

I'd argue that rather than paying the user for it, Redbox could just credit their account for a certain number of free rentals. Then, not only does Redbox get these movies, but it builds up an even more loyal userbase... with really no significant way for the studios to block this out. There are some things that are tricky about this -- including verifying that the purchased DVDs are what they say they are, and coming up with a way to accurately handle the inventory management, but it is creative, and it shows that as much as the studios want to think they can control this market, there's always going to be some way around their restrictions.

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Filed Under: crowdsourcing, dvds, movies
Companies: redbox

38 Comments

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Brendan (profile), 27 Oct 2009 @ 8:04am

Brilliant.
I missed that in the comments last time.

I was going to say Redbox Credit (Redbux?) makes a lot more sense for the company, and removes the outside processor (which has fees, rules, etc).

Everybody wins. Redbox gets it movie supply, and customers get to buy one dvd then rent 10-20 more for no additional cost.

I'd say a balance could be reached between credit and cash. ie, get $20 credit or $15 cash, where the actual values depends on the newness/demand for the movie in question.
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thublihnk (profile), 27 Oct 2009 @ 8:21am

That is an AMAZING idea. I hope Redbox is listening, 'cause this could be positively groundbreaking for them. I'll admit, I first dismissed Redbox, not because of the business model but because the vending machine nature pretty much makes it the "Best Sellers on the New Releases" rack at Blockbuster, and I don't usually watch those. But this could be huge.
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:Lobo Santo (profile), 27 Oct 2009 @ 8:22am

Could Redbox Crowdsource Its Way Around Movie Studio Blockades?
Yes, easily.

The petulant whinging of the Studios only serves to demonstrate their collective greed and utter lack of business acumen.

(Once again--this, like almost all life problems, can be solved with proper application of explosives.)
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Anonymous Coward, 27 Oct 2009 @ 8:42am

The legal comeback will be fun also. They will probably get sued for trademark infringement for using the name of the movies in the pledge list.

btw, the explosives idea is difficult (there's the logistics of not harming too many innocent people), but it's worth considering.
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Designerfx (profile), 27 Oct 2009 @ 8:48am

lendingclub.com?
Mike, I urge you to look at the website design that lendingclub.com uses to fund loans.

Basically, they put a request amount (say $7500) and people can fund in multiple's of 25$ the money for a loan. Basically they have a system to track each person's individual contributions to a total sum. Lendingclub apparently needs to do some kind of account verification for security but the end result is that they need your bank routing number/account number, so I imagine Redbox might in order to do what this idea suggests.

I'm sure such a system to crowdsource could be implemented *VERY* easily.

Mr. anonymous coward, what is the actual trademark there? I'm confused. Are people going to get confused that contributing money to buy spiderman 3 is a trademark violation of spiderman 3? That makes no sense.
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Steve, 27 Oct 2009 @ 8:50am

Actually verifying the identity of the DVDs is really simple, there is a unique identifier for each one that you could easily track in a database.
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thomas, 27 Oct 2009 @ 8:50am

Restraint of trade?
How can they legally tell people not to sell to a particular source? Not that the justice department will ever go after them for that since the **AA has the justice department in their hip pocket.
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Anonymous Coward, 27 Oct 2009 @ 8:57am

Coronet Films Present "Communism"
Haha. No. Redbox and it's parent is a vending machine company.

If anything at all, if they can offer a DVD for $1 a day, it shows how much margin there is in the DVD rental business. I don't understand why this is a problem for the studios unless the real thing is that don't like the idea of passing systemic-level cost efficiencies to the customer.

...And that is another form of communism, and they are no better than Hitler.
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chris (profile), 27 Oct 2009 @ 9:07am

Re: lendingclub.com?
Mr. anonymous coward, what is the actual trademark there? I'm confused. Are people going to get confused that contributing money to buy spiderman 3 is a trademark violation of spiderman 3? That makes no sense.

it's a simple plan: the words "Spiderman 3" and possibly a picture of same is used to do something that the studios don't like, er go trademark infringement.

sure, this is not the intent of trademark law, but that is immaterial. all is fair when you are protecting studio profits.
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hegemon13, 27 Oct 2009 @ 9:28am

Misses the opening week window
The problem with this is that Redbox would miss the opening week window, which is the period when a movie generally has the highest volume of rentals.

The fact is that even if the studios somehow get by with restricting wholesale sales, it is a flat-out illegal restraint of trade to try to stop retail sales. There is absolutely no defense the studio can use that makes it anything but blatant, shameless antitrust. I just hope it goes all the way and the judge hits them HARD, as opposed to some half-assed out of court settlement.
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Chairman Mao, 27 Oct 2009 @ 9:41am

Great Redbox Product Idea
Make "Baby Einstein" videos and a series called "This week in the mind of Glenn Beck" available at Redbox. Quality Education for 22nd Century American babies, and Glenn Beck to entertain 22nd Century parents. Two rentals mean double the revenue.
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Designerfx (profile), 27 Oct 2009 @ 9:42am

Re: Great Redbox Product Idea
please, no. we don't want to make people more retarded.
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John (profile), 27 Oct 2009 @ 9:57am

Downside for Used DVD Shops
I love this idea and I don't even used redbox. Why? I want to offload a bunch of old DVDs but I don't want to go to a pawn shop. I really hope they do this and if for nothing else but to give the finger to the content curmudgeons.
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Anonymous Coward, 27 Oct 2009 @ 9:59am

I don't see what incentive there is for retailers not sell to Redbox. First, they sell more movies. Second, how would the movie studios even know which retailers were selling to Redbox?
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Anonymous Coward, 27 Oct 2009 @ 9:59am

As far as inventory tracking is concerned, it could be easily accomplished by a seller/buyer rating system similar to the one used by eBay. After you have provided a certain number of movies (let's say 15) that have been identified by Redbox Personnel to be of good quality, and what you said they were, you're submission are automatically assumed to be correct, with only random testing being done (I seem to remember a good deal of a Prob Stats 1 course being devoted to determining how often you need to check a supply to show if n% are defects or incorrect, etc...) to determine that you are, in fact, providing the correct DVDs. This, coupled with a review system when people check the DVDs out and return them ("Was this the correct Movie? Y/N") would allow for customer based checking as well, thus offloading the work from RedBox.
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Bologna Joe, 27 Oct 2009 @ 10:04am

Or they could just keep buying from Ingram under another business name......Seems much easier albeit less web 2.0 so I suspect your readers will flame me for some reason...
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Anonymous Coward, 27 Oct 2009 @ 10:05am

Redbox should just "rent" movies from NetFlix.

The Mail Carrier can put them in the machine.
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Anonymous Coward, 27 Oct 2009 @ 10:09am

Re: lendingclub.com?
AC was poking fun at the stupid trademark lawsuits that always come up. "You said our name VIOLATION TO YOU!"
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Paul Brinker, 27 Oct 2009 @ 10:24am

I like the New business name instead. Call it "Red Holding company" The whole reason for being in business is to buy DVD's and sell them to redbox (at cost) Red Holding never shows profit, has no buildings, and has no balance in cash.

If this wont work make like 5-6 "Red Holdings" and let the studios figure out who is a shell for redbox.
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Mike Masnick (profile), 27 Oct 2009 @ 10:25am

Re: lendingclub.com?
Mike, I urge you to look at the website design that lendingclub.com uses to fund loans.

Heh. Their offices are in the same building as us. Actually, we used to be directly next to them (sharing a wall), but recently moved to another part of the building. I also have some friends who work there. Quite familiar with LendingClub.

Still, that's a big project. Not sure Redbox wants to devote that much effort.
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Dark Helmet (profile), 27 Oct 2009 @ 11:01am

Re: Great Redbox Product Idea
""This week in the mind of Glenn Beck" available at Redbox."

Sweet! I love Fantasy movies!
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Free Capitalist (profile), 27 Oct 2009 @ 11:17am

Re:
Or they could just keep buying from Ingram under another business name......Seems much easier albeit less web 2.0 so I suspect your readers will flame me for some reason...

The NERVE!!!

I'm Google Waving your friends on my iPhone 4GPOS right now.

j/k I would go with that idea if I ran Redbox.
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Big Broccoli, 27 Oct 2009 @ 11:30am

Re: Brilliant.
I hereby trademark the term "Redbux", "Redbucks", or any such usage. If anyone wishes to use these terms I dmand royalty fees.
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Big Broccoli, 27 Oct 2009 @ 11:35am

Re:
Should call them "Red Herring"
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Dave (profile), 27 Oct 2009 @ 11:37am

Re: Red Holdings
Sounds like what the RIAA did with those independent promoters. Let the indies pay the radio stations to play the records, and it skirts payola laws. Very nice.

On the other hand, we'd have to think up a new name for them, because "Red Holdings" would be too obviously related to Redbox somehow, and a certain Uzbek billionaire might just sue for trademark infringement.
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nelsoncruz (profile), 27 Oct 2009 @ 11:42am

I think the logistics and inventory of "crowdsourcing" could get tricky and expensive. It makes more sense to setup a separate company that buys direct from distributors and then resells to Redbox. If they ban that one... rinse, repeat.
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McBeese, 27 Oct 2009 @ 11:43am

Even better..
Yes, providing customers with a credit balance for free rentals is a better idea. Perhaps you could allow people to withdraw a percentage in cash once or twice a year if their credit amount is above a certain amount.

I think the main point is that if you challenge people with a set of requirements that you can specify, they will come up with a creative solution to just about any problem. The less restrictive you can be with the requirements, the more creativity you'll get.

Crowd sourcing is just getting started.
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nelsoncruz (profile), 27 Oct 2009 @ 11:43am

Re: Downside for Used DVD Shops
Out them on Ebay.
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nelsoncruz (profile), 27 Oct 2009 @ 11:45am

Re: Re: Downside for Used DVD Shops
I meant "Put them on Ebay".
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Justin Zak (profile), 27 Oct 2009 @ 12:10pm

Automation
I think this is a great idea, and agree that credit would be much better than cash. Not just because it would benefit Redbox, but because it would decrease the incentive for cheating if you aren't getting cash.

I think that automating the process should be the goal. The Redbox kiosks should be able to run a quick algorithm to know that a DVD is genuine and that it's the correct region and such. I mean DVD players do some of that. Then it could also run a quick CRC type of check to make sure it's the correct movie. Then you could just have users deposit the movies directly to the kiosks that need the movie or mail them in depending on the user's preference and the need around that user's area. I'm sure people will learn how to hack and cheat the system, but then you just remove the credit from their account or close their account if you find that they are cheating. If there's no cash involved, but only credit, then that shouldn't be a big problem. I'm not saying I've worked out all of the details or that it could even be possible or feasible, but it might be an interesting experiment at the least.
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Mechwarrior, 27 Oct 2009 @ 12:10pm

Redbox just needs to create a shell company or companies and buy under those names. Its completely legal, many companies do it to prevent competitors from seeing their tracks.
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John Duncan Yoyo (profile), 27 Oct 2009 @ 12:29pm

Re: Re: Red Holdings
They should have half a dozen shell companies or just order from Amazon.

Actually the user buys for a credits model could work faster if they distributed special submission envelopes to certified users. The envelope would be coded with your account number. You buy the disk, watch the disk, place into special green redbox envelope and deposit into any redbox like any other disk. It would get the disks to the distribution channel more quickly
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Bologna Joe, 27 Oct 2009 @ 1:15pm

SERIOUSLY
You guys are putting a lot of thought into a really bad business idea. Remember the KISS concept. Why go to all the trouble (crowd sourcing, credits, logistics, fraud) when they just need to set up a subsidiary to buy through...

But you have fun with your class project.
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McBeese, 27 Oct 2009 @ 2:58pm

Local Verification
I like the way this is going. The idea of finding a way to deposit the disks on a per machine basis - without expensive mods to the machines - is really good. Verification and association with the user is key to avoid fraud, malicious porn distribution, etc. I'm sure Redbox could come up with an online mechanism to screen and verify. Deposit envelopes could be kept at each Redbox so the disks can be delivered right to the machines.

Creativity can not be stopped.
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McBeese, 27 Oct 2009 @ 3:05pm

Re: SERIOUSLY
Shell companies and/or subsidiaries aren't going to fool anyone, IMHO. And the cost of establishing these companies is a lot more than the cost of the distributors to simply add another name to their "do not sell to" list. I don't get how this would be a good solution.

The best and most effective solution is to get the distributors to wake up and come to their senses. One way of achieving that goal is to demonstrate a workable option to bypass the distributors control, which is what this thread is about. In my opinion, nothing would get them back to the table quicker.
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John Laprise (profile), 28 Oct 2009 @ 1:09am

Uhmmm...you know...
You know, Redbox could avoid everything if they simply offered to buy used DVDs from the public and from resale shops. They don't have to buy new. Also, for those people interested in whole CDs, this would be an effective way of redistributing music without running afoul of any IP issues...

Even better, Redbox or another user of this kind of system could innoculate themselves from IP arguements further by freely offering a flat percentage of rental fees to the artist/studio etc...
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Fred McTaker (profile), 28 Oct 2009 @ 12:01pm

Re: Misses the opening week window
Whether they miss any "opening" is more dependent on the speed of the crowdsourcing interaction in retail vs. studio release to other rental companies. The studios are talking about delaying the other contracted rental services from the initial DVD/BluRay release by about a month, so that gives Redbox up to a month ahead of their competition.

I like the crowdsource submit idea, but I think depending on how well the vending machines are run, it could be done even more efficiently than Mike's mail-in idea above. They stock each machine in each area with demand for a given movie with disc-holder empties for that movie the night before release. The crowdsourced disc buyer goes to the box, retrieves the empties in the same way they might rent a video normally (except without any money or credit exchanged at that point). As long as the empty is returned with a valid disc inside within the next day or so, full credit is applied to their account. Some penalty could apply to delayed returns or empty returns, the same way a bad rental return would be punished.

To create greater incentive for early/fast submissions, some pre-arranged decay rate can be applied to the credit amount, i.e. starting at 3xDVD-cost=Redbucks, and descending to 1.2xDVD-cost=Redbucks after the initial high-demand period is over. Cash reimbursement could be straight cost reimbursement or minimal percentage incentive, so that greater Redbox credit incentives would be more appealing to the customer. Better-than-matching cash reimbursement could be also be used just in the first-day release period, to give incentive to immediate retail-to-vending transactions, so the customer doesn't even feel compelled to watch the disc before submission just to "get their money's worth" from the transaction.
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Steve, 31 Oct 2009 @ 3:06pm

Almost a decade the studios have been fighting the internet tooth and nail and getting nowhere. They need to come to terms with the fact that the new marketplace allows consumers to get whatever they want, however they want it, whenever they want it. It can't be stopped, it even be slowed down. The sooner they realize that with or without them, consumers are just going to continue down this path because it's what they want, the sooner they can start raking in the cheese. In the last 20 or 30 years, business has forgotten rule #1. That is you will only be successful if you offer a product that consumers want. End of discussion. Trying to get the market to conform to the way you do business is a hold out from the wrong-headed thinking of the 80's when it was easy to manipulate the market because there were no other avenues available. However it shakes out, the last 2 decades are going to be required reading in business and law classes of the future.
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