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A Virtual Happy Meal: McDonald's Redbox a Smashing Success

Dec. 01, 2006 4:23 AM ETMcDonald's Corporation (MCD)
Davis Freeberg profile picture
Davis Freeberg
56 Followers

It’s hard to believe that the concept of Redbox started out 4 years ago, but what was initially a series of radical experiments by McDonald’s (NYSE:MCD) has turned into an undeniable box office success for the company. McDonald’s may have first come up with the concept in 2002, but it wasn’t until 2003 that they tested their first unit. Initially, they had a very modest beta launch of only 6 DVD kiosks in their Las Vegas restaurants and another 11 in their Washington area stores.

Redbox

Early on, there was a lot of doubt as to the real viability of the project. Analysts, insiders and consumers all expressed concern over whether or not they would ever see the machines gain acceptance. When McDonald’s pulled their experimental Tik Tok kiosks, which sold items like milk, eggs, pantyhose and even diapers, many thought it would be curtains for their experiments with DVD as well.

Luckily for them, McDonald’s stuck with their Redbox venture and by the summer of 2004, the company started a 2 year test launch by expanding their DVD experiment to 100 machines in the Denver area. After gaining traction in Denver, Redbox quietly began opening up kiosks in four other markets and pretty soon a few grocery stores started signing contracts with Redbox as well. By the end of 2005, Redbox reported that they were renting 1.1 million DVDs a month at about 800 total locations. Realizing the potential for expansion beyond just McDonald locations in late 2005, McDonald's sold 47.3% of the company to Coinstar (CSTR) in exchange for $20 million in cash and another $20 million in 2006 if everything went according to plan.

Well if a recent announcement by McDonald’s is any indicator, I think it’s safe to say that things have gone much better then planned. Not only

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