Redbox Adds Video Games, Challenging Gamefly

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On Thurdsay, DVD rental giant Redbox announced that it will expand its offering to include video games at more than 21,000 of its kiosks nationwide. The new service will launch Friday, and include titles from the Nintendo Wii, Xbox 360, and Playstation 3, all for roughly $2 per day.

The addition of video games bolsters the company's already-popular DVD rental service, and represents a leg up over competitor NCR, which offers DVDs at kiosks under the badly wounded Blockbuster brand and has yet to move beyond renting movies. But more importantly, it creates a new headache for Gamefly, the Netflix-of-video-games, which is gearing up for its IPO. Is Gamefly now a competitor to Redbox?

"I think there's a couple of differences," says Joel Resnik, VP of video games at Redbox. "We've got some really great benefits over our 21,000 locations for immediacy--that core gamer who wants to play right then and there has access to do that. We also allow for someone who is not even thinking about games to walk out of the grocery store and have that impulse perspective to try us out."

There's the sense that Redbox's offering reaches a different set of consumers. While Gamefly is likely only to appeal to the most avid of gamers, Redbox is for a "wide gambit of consumers," says Resnik. "Not necessarily just the core or avid gamers, but the lapse, casual, and non-gamers." He adds that the number one reason customers use Redbox is to preview games, or "try-before-you-buy."

Gamefly, on the other hand, does not provide for impulse rentals, and is too expensive as a preview service. Gamefly rents video games for a monthly subscription of $15.95 for one game out at a time, and $22.95 for two games out simultaneously. "The Gamefly model is something that you maybe are thinking about ahead of time, and you're going online, and picking your product, and reserving it, and having to have it shipped for you," says Resnik. Redbox offers instant gratification--you'll have to wait to receive the title from Gamefly via snail-mail.

Still, the upside of Gamefly is having unlimited rentals. The subscriptions on Gamefly cost as much as a video game rented at Redbox would for eight and 12 days, respectively. So, for a hot new release like LA Noire, which has dozens and dozens of hours of gameplay, it's likely still more cost-effective to rent via Gamefly than Redbox.

A similar dynamic exists between Netflix and Redbox. Both companies have flourished even as they are seemingly targeting the same customers--in the first three months of 2011, Redbox pulled in $362 million in revenue, up 38% year-over-year. However, the more Netflix transitions its business to instant streaming, the more it encroaches on Redbox's space; similarly, if Gamefly is ever able to offer instant downloads, it would render Redbox's offering obsolete.

[Image: Flickr user San Diego Shooter]

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