Redbox has added games to its repertoire so users can rent the latest Medal of Honor or other titles along with a movie. It is a nice advantage over cinema-only Netflix, but bad pricing and narrow options will do much more harm than good.
The initial mistake here is that Redbox video game rentals cost twice as much as movies. According to TechCrunch's Samuel Axon, games are $2 per rental compared to $1 per DVD and $1.50 per Blu-Ray. The $1 per rental that has carried Redbox thus far worked because it encourages an impulse buy: You can have an extra dollar in your pocket. The $1.50 per Blu-Ray is awkward, but understandable considering the higher cost of the movies.
Charging $2 per video game, however, makes no sense. The average video game runs between $40 and $50, not much more than a new Blu-Ray movie, so it's not about getting the money back -- games could have easily run for $1.50 per rental. Furthermore, Redbox is not only supporting the Sony (SNE) PlayStation 3 and Microsoft (MSFT) XBox 360 games, but the cheaper Nintendo (NTYDO) Wii and DS games, too, which run about $40 and $20, respectively. Again, no reason to charge so much for the rentals.
Whatever the reasoning, the $2 price tag kills the chances of an impulse buy. Now Redbox is asking for multiple dollars that could be put towards an $8 per month Netflix account or, more importantly, a $6 per month GameFly video game rental program. That's not even addressing indirect competitors, including Apple (APPL) with its $.99 apps and OnLive with its (now free subscription) virtual gaming.
The more damning problem is that video games, like movies, are set to one day rentals. Redbox is putting its emphasis is on the latest, most popular titles, like Halo Reach. The issues here are two fold.
First, the most popular games are sprawling epics like Halo and they require several hours, if not days to complete. A hardcore gamer may be able to beat the game by pulling an all-nighter, but a hardcore gamer would also be buying the game the first day it came out or getting it from GameFly -- not renting it from a red box in front of the 7-Eleven. Redbox is all about the casual rental, which is the exact opposite of the hardcore player, and more casual players wouldn't consider one day enough time.
Second, the most popular games, whether they be sports, role playing or action, have an online component. While gaming alone or with friends in front of a TV is still popular, multiplayer online modes in games such as Halo or Medal of Honor are just as robust, if not more than the lone living room experience. According to Redbox's plan, gamers are expected to enjoy and explore both the single and the multiplayer modes within 24 hours.
The whole design makes it clear that Redbox didn't take the time to study the culture or gaming habits before it decided to diversify its offerings. This isn't the time to recklessly dilute the brand, especially as Apple, Google, Netflix and other competitors offer new simpler and, at this point, cheaper ways to get the same content.