How Redbox Is Moving Video Games (and Why Dark Souls Isn’t a Hot Rental)

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You know Redbox, the big red “box” you’ve probably spied sitting outside your local grocery or drug or convenience store?

I first ran into one back in August 2008, just before I moved overseas, staged in the entryway of a grocery store in a mid-sized Iowa town of about 10,000. It looked like a red TARDIS, something cribbed from an episode of Doctor Who and repainted, only instead of a pair of doors, you worked a screen to propel recently released movies through space-time…then out a little slot, after which you were entrusted with the movie’s safekeeping, all while avoiding the scrutiny of an ID- or membership-checking sales associate.

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I don’t remember what was hot that summer, but IMDb tells me it was stuff like 21, Harold & Kumar Escape from Guantanamo Bay, The Bank Job, and Doomsday. (I believe Redbox was charging just $1 per rental even then.)

My reaction to the box was twofold: First, that it looked a little gimmicky — surely something that wouldn’t last, given my assumption that physical media was doomed (the timeframe’s debatable, but that assumption stands). And second, where were the video games?

Bucking my informal assessment, Redbox, which had already by 2008 long surpassed Blockbuster in number of U.S. locations, went on to grow from 100 million rentals in February 2008 to over one billion rentals by September 2010. In its Q2 2011 self-assessment, it reported market share growth of nearly 10 points over the prior year, bringing it to just shy of 35% total market share — tied with “online/by mail rental providers” (read: Netflix).

In June 2011, after tests in a handful of cities, Redbox finally flipped the video game switch, offering PlayStation 3, Wii and Xbox 360 games at about 22,000 of its kiosks. The company currently has about 36,800 kiosks total in the U.S., all of which rent video games. If you walk up to a Redbox kiosk today, in addition to stuff like Man on a Ledge, Contraband and The Woman in Black, you’ll find mainstream games like Max Payne 3 and Mass Effect 3, as well as less core-gaming-angled fare like Madagascar 3, Grease and Club Penguin: Game Day!

In fact to hear Joel Resnik (Redbox VP of video games) tell it, the company’s top renting games tend to align more with the casual crowd. I spoke with Resnik last week, as the company was marking the one year anniversary of its video game rental launch, and he told me that in one year’s time, the company has shifted its business from 100% movie rentals to about 97% movies and 3% video games for 1Q 2012.

That’s hardly a tectonic shift in percentile terms, but when you consider Redbox’s revenue was up 39% during the period to $502.9 million, and that games generated 4-5% of that (between $20 and $25 million), you can see why the company’s touting its investment. Resnik says that since launching in test markets, then formally in June 2011, Redbox has rented about 18 million games in all.

Call of Duty tops the chart, of course — it’s a franchise worth billions, with over 40 million gamers playing monthly online (across all titles) and half of those playing Modern Warfare 3, according to Activision. But Resnik says that, Call of Duty notwithstanding, Redbox’s top rentals actually tend to have Everyone 10+ or below ratings.

E10+ refers to an Entertainment Software Review Board metric that’s applied to games deemed “suitable for ages 10 and older,” and that “may contain more cartoon, fantasy or mild violence, mild language and/or minimal suggestive themes.” Think games like Just Dance 3, Disney Universe and Wipeout 2.

But the “or below” part means “Everyone” games like Mario and Sonic at the London Olympics, too, and Resnik notes that most of the “E10+ or below” games are for Nintendo’s Wii. That said, the Xbox 360 accounts for the lion’s share of Redbox’s rentals at this point, commanding 42% of all game transactions, compared with 33% for the Wii and 25% for the PS3.

Which Xbox 360 games are selling the most? It’s impossible to say, since Redbox only ranks “top 20 movies” on its website. There’s no “top 20 games” option, perhaps because the game business is still nascent enough that Redbox doesn’t want to alienate partners who aren’t charting, or perhaps because it views potential game renters as more thorough researchers about what they want to play, rendering “top rental” charts less important.

Another unsurprising statistic Resnik offered: While the Xbox 360 led in game rentals the first year out, the Wii was strongest during the mid-year and winter months, particularly the off-school periods (summer and the holidays).

Resnik told me Redbox is “engaging the casual audience” as well as the “try before you buy” crowd, then passed along some profile demographics.

According to Redbox, most of its renters are males aged 25 to 34, have attended college, are parents of families with three or more kids and half of the time they’re renting for themselves, the other half for their family. These renters play seven hours or less per week (household total), and here’s the money statistic: “More than 60% report that because of Redbox they are far more likely to try games outside of their usual genre.”

When I asked Resnik about the burgeoning digital-download market, he acknowledged that it’s a challenge Redbox faces down the road, but pointed to the success the company’s currently enjoying as evidence the transition is still some ways off. For all the talk about digital overtaking retail, it’s worth noting that Nintendo’s next game system, the Wii U, will include an optical drive, and that both Sony and Microsoft have hinted that their next systems will follow suit. Redbox’s bet that gamers will still want to rent physical media thus seems secure for the next half decade or so.

I asked Resnik to give me an example of one of the company’s worst renting video games, and he named From Software’s Dark Souls, while noting “worst” is a matter of perspective — the game simply didn’t do as well as a rental given its popularity at retail.

But it speaks to a theme Resnik kept returning to: Dark Souls represents the ultimate core-gamer console game, a relentlessly punitive action-adventure, and core gamers tend to want to own what they play, whether because they’re more inclined to spend their disposable incomes on games or because games like Dark Souls (or Modern Warfare 3) can be played indefinitely — the former because of its limitless replay options, the latter because of its online modes.

Other interesting statistics: 90% of Redbox game renters have rented a movie at the same time as a game, and in overall game rental figures, 40% of the time someone rents a game, they rent a movie, too. We used to call those “multiple SKU transactions” when I managed a mall-based software store in the mid-1990s — a sign in this case, if not a totally shocking one, that movies and games do well as complementary items.

As I mentioned above, Redbox’s biggest challenge lies in the future, with the shift to digital downloads and the eventual demise of retail for media like movies, music and games. Redbox understands this and already has a streaming service in the offing in partnership with Verizon, due by the end of this year.

But movies and music are platform-independent, whereas games tend to be platform-centric. Redbox would be unwise to depend on game revenue beyond the retail-to-digital event horizon, because game companies like Nintendo, Microsoft and Sony (to say nothing of Apple and Google) will only ramp up direct engagement with consumers, enjoying greater revenue without the middlemen. That could change if cloud gaming catches on (see OnLive and Gaikai) and we see proprietary platforms shrivel — but all indications are that we’re still a (game) generation away from that happening.

It’s anyone’s guess where Redbox goes next, but it’ll be fascinating to watch — after all, the company successfully bucked the declining retail-rental trend and rolled out tens of thousands of kiosks, raising massive revenue for its parent company (Coinstar). Whether it’ll be capable of pulling off a similar game-changing trick as it prepares to square off with the likes of Netflix and Hulu…we’ll just have to see.

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