It isn’t a secret that new modes of distribution are viewed
as shaky ground by the major studios. It
makes sense to tread lightly when it comes to innovation. However, the real battle begins when the mode
of distribution grows quickly. Cue
Redbox, the fifth largest DVD rental company in the U.S. run by CEO Mitch Lowe.
That little kiosk sitting at your local McDonald's and/or Wal-Mart with “$1” emblazoned on it represents one
of the new battlegrounds. A quick Google
News search will show you coverage of the kiosk invasion. However, it will also show you that tensions
are high. The discount DVD rental source
has filed suits against Universal Studios Home Entertainment and 20th Century
Fox within the past three months. Though
two of the three claims put forth by Redbox against Universal were dismissed by
a U.S. District Court judge for Delaware, the antitrust claim survived a motion
to dismiss.
Both Universal and Fox are joined by Warner Home Video who
restrict new DVD’s from being sold to Redbox until 28 days after their street
date. Why? According to the numbers, Redbox transactions
yield average revenues of barely over $2 whereas traditional retailers are
yielding just over $4. Factor in a
couple million transactions and that’s a revenue stream looking as shallow as
the L.A. River to the studios.
However, not all studios are slow to embrace Redbox who has
been around since 2002. Lionsgate signed
a deal worth over $150 million to permit distribution in the kiosks. Sony and Paramount have also signed deals. Disney permits third-party distributors to
sell to Redbox, but has not dealt directly with the company.
There is currently a slow parity developing among the three
dominant sources of rentals: DVD-by-mail
providers, traditional rental stores, and video vending machines. Even Blockbuster recently announced the
closing of hundreds of stores across the country to spend more time focusing on
online distribution in order to compete more successfully with rival Netflix. The quick rise in video vending machines and
its impact on the lucrative rental profits has some in Hollywood on the edge of
their seats. Some view it as an untapped resource and
others view it as having the same impact the internet has had on the music
industry. What muddies the waters is the
issue of leverage. The kiosks survive on
giving quick and easy access to new releases and popular titles from the studio’s
libraries while the studios must adapt to consumer trends.
Will the singular antitrust claim prove decisive in this new
battleground? Doubtful. Change in
the rental model is not going to come easy for Lowe and company.
For more information:
Movie Studios See a Threat in Growth of Redbox
The Lowe-down on Redbox
Court OK’s Redbox Suit Against Universal
Paramount to Give Redbox a Spin
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