Redbox expands into Canada

The company is trying to keep up with Netflix's rapid expansion into the global market.

By Benzinga May 23, 2012 5:32PM

Image: Canada (© Royalty-Free/Corbis)By Louis Bedigian, Benzinga Staff Writer


Netflix (NFLX) isn't the only video-rental company expanding internationally. One of its chief U.S. rivals, Redbox, is keeping pace with an expansion of its own.


The Redbox service, which is owned and operated by Coinstar (CSTR), is bringing its famed kiosks to Wal-Mart (WMT) stores across Canada. According to The Globe and Mail, Redbox has also signed a deal to bring kiosks to Alimentation Couche-Tard, a national convenience store operator in Canada.


Redbox's expansion comes at a time when Canada -- the third-largest market for DVD rentals after the United States and Japan -- is losing its biggest video rental chains, including Blockbuster Canada and Rogers Video.


According to The Globe and Mail, "there has been a vacuum in the estimated $1-billion Canadian DVD rental industry since Blockbuster Canada was pushed into receivership last year. More than 400 stores were closed across the country as a result, and Rogers Communications Inc. announced earlier this year it would also stop offering movie rentals in its stores."


Citing data from Convergence Consulting Group, The Globe and Mail said that stores' market share for rentals has fallen to about 20% of the overall rental market. But it's not just DVD-rental services like Redbox that caused this to happen. Netflix, which (in addition to DVDs by mail) offers an online-only streaming video service, has also had a significant impact on brick-and-mortar outlets.


Redbox's interim president, Gregg Kaplan, thinks that the Canadian venture could be very profitable. "Historically, a pretty good rule of thumb, what we've seen in other businesses is that Canada can get to roughly 1/10 the size of the U.S. market," Kaplan told The Globe and Mail. "We're not projecting that yet because we haven't had the experience there, but it feels like it could be sizable."


Canadians can expect to spend $1.50 for standard definition rentals, $2 for Blu-ray, and $2.50 for video games. By comparison, Kaplan said that brick-and-mortar retailers used to charge $4 or $5 per rental.


As a result of the expansion, Coinstar shares were up 4.6% Wednesday, closing at $60.09. NFLX closed at $71.91, up 6.2% for the day, while WMT closed at $64.58 for the day, up 1.33%.


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