Redbox enters the game market - Will it lead to Doom?

Redbox, the kiosk company that rents DVDs for $1 per day, has spent much of this year bedeviling Hollywood with its game-changing technology. Now, however, the Coinstar (CSTR)-owned firm is elbowing its way into the video gaming world. Last week, the retailer premiered its first game rental kiosk in Reno, Nev. The companies new machines will allow users to borrow Nintendo, Wii, PS 2/3 and Xbox games for only $2 a night.

The threat to game producers here isn't much different than that perceived by the major movie companies. The top-selling game last week was Wii Sports Resort, with almost a quarter of a million copies. At $50 apiece, the software grossed over $12 million in those seven days. If the same games were available via a Redbox kiosk for $2 per night, how much would this cannibalize sales?
While Sports Resort is new to the market, and one could argue it would never make it to Redbox so quickly, four of last week's top five best-selling games have been on the market for over a year. Wii Fit, for example, sold 48,308 copies. Studies have found that this "best intention" software is normally used about as often as an in-home treadmill, so it's worth asking how many users would rent it, try it, and buy a copy. I'd guess that sales would be likely to plummet.

Redbox has taken the movie industry to court over its attempt to delay the appearance of newly-released DVDs in the kiosks. Some in the industry contend that the 13.5 percent drop in DVD sales this year is at least in part attributable to the $1 a night Redbox competition. Other entertainment giants such as Sony (SNY) Pictures have taken the opposite tack, and have inked distribution deals with Redbox.

The central question here is whether renting games will whet players' appetites and drive more sales, or if renting will scratch the itch, killing sales. However, the ultimate question is why, in the age of high bandwidth, we are still wasting our time with plastic discs. In many ways, the rental kiosk seems to be the phone booth of the 2000's, doomed to disappear in a sea of new technology. Of course, in the meantime, it could still siphon off a lot of disk sales.
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