Redbox's machines take on Netflix's red envelopes

But while DVDs will someday disappear, for now the market dynamics still work for Redbox: almost 90% of U.S. homes have a DVD or Blu-Ray player, while only a sliver download movies to their computer or stream them from the Internet, said Russ Crupnick, an entertainment analyst for market researcher NPD Group.

Crupnick doesn't expect streaming services to fully catch on until the technology is built into more television sets. And since many people just invested in new flat-screen TVs, it will be years before they replace them.

"Digital options and physical options can coexist," said Crupnick. "People think there's this balkanization — 'Once I get Netflix, I never go to Blockbuster. Once I go to Redbox, I don't need Netflix.' That's really not the way that it works in the world."

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