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A rational/efficient example of where renting might be a better deal for you is if you don't have access to wholesale prices and someone else does. They buy at

A rational/efficient example of where renting might be a better deal for you is if you don't have access to wholesale prices and someone else does. They buy at a discount and then they rent out to you at a price which makes it cheaper for you than buying at retail. A classic scenario is renting a movie. Let's use DVDs as an example--even though they're falling out of favor, they're a little simpler to talk about, and the economics of online aren't that much different. Studios like big numbers and would like to sell movie media/rights/access/whatever (it's complicated) to someone who can drive lots of demand. So the rental outlet will get a steep discount on those things for buying in bulk. Meanwhile, you're not even sure if you'll want to watch that movie more than once, and the resale value of a used DVD after a couple years is basically zero. So renting the DVD at least the first time, and maybe every time you want to watch it, is a pretty good deal. Case in point, Redbox's "markup" over whatever they're paying the studios is large, but it's still a pretty good deal for you and me.

Thorrez 7y ago
I doubt studios want to give Redbox a discount, because rentals cut into sales, which the studios care about more than rentals. Redbox operates because of first-sale doctrine. I assume Redbox pays the same as stores pay, which is indeed cheaper than what a consumer pays, but there's no discount especially for Redbox. Why do digital rentals cost more than physical rentals? Because first-sale doctrine doesn't apply to digital so studios can charge more. First-sale doctrine prevents studios from charging more for physical rentals, and they won't be eager to pile on any extra discounts for Redbox. I think the real benefit to the consumer of renting from Redbox instead of buying is that Redbox has economies of scale on exchanging movies between consumers and distributing them geographically. If a consumer buys a movie, watches it, and resells it, that's a lot of hassle, whereas Redbox has managed that redistribution by building automation.
- mywittyname 7y ago
  Studios used to give discounts to movie rental companies. An old girlfriend of mine managed one about $15 years ago and I seem to remember the prices for new DVDs being $4-6 on the order form. This was for movies that retailed in the $15-20 range. I think what happened is they started selling to Walmart et al for the same price.
  - Thorrez 7y ago
    That seems strange. I don't know what their motivation for that is, given I assume it would lose them money, and it's contrary to digital rentals being so expensive. This article (admittedly from 2008) says studios hate Redbox. And that Redbox gets its DVDs from regular movie wholesalers (I assume where Walmart gets them too). https://arstechnica.com/tech-policy/2008/10/universal-studios-attacks-dvd-rental-kiosks/ https://arstechnica.com/tech-policy/2008/10/universal-studio...
    - apatters 7y ago
      First sale doctrine protects your right to rent out a copy that you own to one person at a time. Since movies are in high demand when they first come out and the demand tapers off quickly, this alone doesn't create a very appealing economic model for rentals. At $20 per DVD it's hard to make back your cost. So the studios have offered rental outlets deals in the past. I actually don't know the details of Redbox. The specific example I remember is Blockbuster video, which used to get copies of movies for virtually free, in exchange for sharing a portion of their profits with the studios: https://www.quora.com/How-much-do-movie-rental-stores-e-g-Blockbuster-company-pay-for-each-movie https://www.quora.com/How-much-do-movie-rental-stores-e-g-Bl... I think the studios agreed to this because of market segmentation, for any given movie there are people who have no interest in paying $20 to own it, but will pay a few bucks to rent it once or twice. If the studios didn't support this model they'd be leaving money on the table.
      - Thorrez 7y ago
        It makes sense that rental stores would get cheap copies if they're also doing profit sharing. But it's unclear to me who's getting a better deal there compared to the rental place just buying at normal price and keeping all profits.
        apatters 7y ago
        I just remember reading (or hearing) that it was a tough business because demand for new releases was very high, and then tapered off quickly. So a lot of DVDs would only get rented out 2-3 times and then would never be needed again, if you're paying $20 per DVD it's tough to come out ahead. It's all ancient history at this point so my memory is fuzzy, but I think hobbyist stores actually had the better business model by that measure (they'd focus on a limited selection of classics that people would rent again and again). Then Blockbuster came along with these studio deals they were able to negotiate based on their volume, allowing them to offer practically unlimited copies of new releases. In conjunction with a decent selection of classics this enabled them to lure customers away from the hobbyists. A combination of pressure from the studios and the emergence of competitors with lower operating cost (Redbox, Netflix etc.) later crushed Blockbuster. And watching the studios raise their fees until Blockbuster collapsed surely contributed to Netflix's decision to produce a lot of original content. And now we're caught up to the present day.

Thorrez 7y ago

I doubt studios want to give Redbox a discount, because rentals cut into sales, which the studios care about more than rentals. Redbox operates because of first-sale doctrine. I assume Redbox pays the same as stores pay, which is indeed cheaper than what a consumer pays, but there's no discount especially for Redbox. Why do digital rentals cost more than physical rentals? Because first-sale doctrine doesn't apply to digital so studios can charge more. First-sale doctrine prevents studios from charging more for physical rentals, and they won't be eager to pile on any extra discounts for Redbox. I think the real benefit to the consumer of renting from Redbox instead of buying is that Redbox has economies of scale on exchanging movies between consumers and distributing them geographically. If a consumer buys a movie, watches it, and resells it, that's a lot of hassle, whereas Redbox has managed that redistribution by building automation.

mywittyname 7y ago
Studios used to give discounts to movie rental companies. An old girlfriend of mine managed one about $15 years ago and I seem to remember the prices for new DVDs being $4-6 on the order form. This was for movies that retailed in the $15-20 range. I think what happened is they started selling to Walmart et al for the same price.
- Thorrez 7y ago
  That seems strange. I don't know what their motivation for that is, given I assume it would lose them money, and it's contrary to digital rentals being so expensive. This article (admittedly from 2008) says studios hate Redbox. And that Redbox gets its DVDs from regular movie wholesalers (I assume where Walmart gets them too). https://arstechnica.com/tech-policy/2008/10/universal-studios-attacks-dvd-rental-kiosks/ https://arstechnica.com/tech-policy/2008/10/universal-studio...
  - apatters 7y ago
    First sale doctrine protects your right to rent out a copy that you own to one person at a time. Since movies are in high demand when they first come out and the demand tapers off quickly, this alone doesn't create a very appealing economic model for rentals. At $20 per DVD it's hard to make back your cost. So the studios have offered rental outlets deals in the past. I actually don't know the details of Redbox. The specific example I remember is Blockbuster video, which used to get copies of movies for virtually free, in exchange for sharing a portion of their profits with the studios: https://www.quora.com/How-much-do-movie-rental-stores-e-g-Blockbuster-company-pay-for-each-movie https://www.quora.com/How-much-do-movie-rental-stores-e-g-Bl... I think the studios agreed to this because of market segmentation, for any given movie there are people who have no interest in paying $20 to own it, but will pay a few bucks to rent it once or twice. If the studios didn't support this model they'd be leaving money on the table.
    - Thorrez 7y ago
      It makes sense that rental stores would get cheap copies if they're also doing profit sharing. But it's unclear to me who's getting a better deal there compared to the rental place just buying at normal price and keeping all profits.
      - apatters 7y ago
        I just remember reading (or hearing) that it was a tough business because demand for new releases was very high, and then tapered off quickly. So a lot of DVDs would only get rented out 2-3 times and then would never be needed again, if you're paying $20 per DVD it's tough to come out ahead. It's all ancient history at this point so my memory is fuzzy, but I think hobbyist stores actually had the better business model by that measure (they'd focus on a limited selection of classics that people would rent again and again). Then Blockbuster came along with these studio deals they were able to negotiate based on their volume, allowing them to offer practically unlimited copies of new releases. In conjunction with a decent selection of classics this enabled them to lure customers away from the hobbyists. A combination of pressure from the studios and the emergence of competitors with lower operating cost (Redbox, Netflix etc.) later crushed Blockbuster. And watching the studios raise their fees until Blockbuster collapsed surely contributed to Netflix's decision to produce a lot of original content. And now we're caught up to the present day.