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Albina Hickel
Coinstar's (CSTR) Redbox inked a deal last week with Universal Studios and 20th Century Fox that finally puts an end to an almost year-long dispute over the supply and rental of new DVD releases. Under the agreement, the movie studios will supply Redbox with ample DVDs to stock their kiosks. But Redbox will have to wait 28 days after the movies' initial DVD release to get them.
Movies will still be available on DVD for $1 a day, and Redbox will also start offering Blu-ray disks. However, the company will be prevented from reselling the movies after they are removed from the kiosks. Redbox had already reached a similar deal with Warner Bros. in February. Warner Bros. is a subsidiary of Time Warner (TWX, Fortune 500), CNNMoney.com's parent company.
The biggest Hollywood studios had become disgruntled with Redbox's business model. The $1-per-day price undercut Blockbuster (BBI, Fortune 500), Netflix (NFLX) and video on demand services, especially if customers return their movies to Redbox in a timely fashion. With big studios already struggling to maintain DVD revenues, Warner Bros., Universal and Fox eventually stopped supplying Redbox with new releases.
Redbox, in turn, sued the studios on antitrust grounds. In the meantime, the company pledged to continue supplying its kiosks with day-of-release DVDs, even if it meant buying them at retail. In fact, the company hired hundreds of workers to go to Walmarts (WMT, Fortune 500) around the country to buy up new releases in order to fill their kiosks.
Analysts said that something had to give. Buying movies at retail was cutting deep into Redbox's profits and presented a logistical nightmare. At the same time, movie studios could no longer ignore the surging popularity of the red kiosks, which recently topped 20,000 nationwide -- With kiosks in supermarkets, drug stores and McDonald's (MCD, Fortune 500), Redbox has rented out over 500 million DVDs to impulse buyers that have been wooed by the $1 price tag.
The new agreement marks a complete 180 for Redbox. Will people continue to pick up movies from Redbox kiosks after they have already been available for rent or purchase from other retailers for over a month?
"The price and convenience of Redbox is still attractive to consumers," said Steve Frankel, analyst at Brigantine Advisors. "Netflix also has a 28-day wait, but while 70% of Netflix's demand is for older titles, 100% of Redbox's demand is for new titles. Some of the savvier Redbox customers are going to be disappointed."
Analysts were quick to note that many customers aren't aware of when DVDs are released, and 60% of Redbox's titles will still be available the same day that they are available for purchase or rent at Blockbuster.
Some movie studios, such as Sony's (SNE) home entertainment unit and Lionsgate (LGF), have signed multi-year agreements to supply Redbox with new releases of DVDs. Viacom's (VIAB, Fortune 500) Paramount extended a trial program that ends in June. Paramount has the option to extend the deal through 2014 after the trial expires.
But that still leaves at least 40% of Redbox's titles that are available at the same time as Netflix -- which consumers don't even need to leave their homes to view: In addition to Netflix's strong collection of older movies, it also offers a streaming service that makes up for its lack of day-of-release movies. Many analysts have speculated that Redbox will unveil a streaming service as well, but that may be a long way off.
Robert Evans, analyst at Craig-Hallum Capital, said he expects the deal to have a single-digit percentage impact on Redbox's revenue but a larger impact on the company's profitability and margins. But analysts say investors may need to wait a bit longer for the stock to find its ultimate direction.
"The stock will trend positive in the near term, since the lack of clarity on the supply of DVDs was a great overhang," said Evans. "But we'll need to see the impact of the 28-day delay in the next couple quarters to tell where the stock is ultimately going to go."
Redbox has now reached a long term distribution agreement with Universal Studios and 20th Century Fox to make DVDs and Blu-Ray titles available in its kiosks 28 days after their home video release, following in the footsteps of Warner Bros. This ends a legal dispute between the studios and Redbox, who say that they were fighting for this waiting period to prevent the discount rental chain from eating away at their higher margin DVD sales and rentals from other chains.
This is similar to many of the deals the studios have made with Netflix as well, so expect to be able to rent Avatar and future release The Wolfman 28 days after their release date in the home video market.
Just like the deal with Netflix, Redbox President Mitch Lowe has stated that this distribution agreement ensures other DVDs and Blu-rays from these studios and allowing to keep the $1 a day rental fee. With this new deal in place, Redbox has said they would drop its lawsuits with Universal and Fox.
What do you think about this huge deal in the rental world? Are you willing to wait 28 days for a new release to watch or will you instead just end up buying a film before renting it in the first place?
Writer. Podcaster. Social Media Enthusiast. James has loved film from the moment he set eyes on the screen. A Brooklyn, New York native, always trying to find a film that will shock and surprise him. Twitter / cineAWESOME
This will not impact shoppers that only want to see the movie once or twice, not own it. We weren't going to buy the dvd except in the bargain bin anyway. But the studios may need to do more advertizing because I will forget about Avatar 28 days from now, maybe tomorrow.
I was looking forward to watching this since it got good reviews. I was very disappointed to see I couldn't get it on redbox. I checked netflix and time warner instant view also. They all seem to have this deal with the studio. They want to force us to buy the movie. Well I am not buying. I wanted to watch it once not own it. And since I am stubborn I will just wait until it come on HBO and the studios can go hang themselves for all I care.
Torrent search here we come. They could have made some money from us renting from redbox. I don't like being bullied into having to buy a film in order to see it asap, or have to spend 6+Tax for a two night rental. Screw 'em time to DL it for free :D
Later this year, likely November before the holidays, Avatar will come out in 3D, so will wait for then to buy it. I do think this movie has raise the bar, so will support, but will wait until the 3D extend version comes out. It is disappointing that Redbox and others are delayed for these movies, but I waited this long will wait a bit longer. This happened for BlindSide as well and now its available at Redbox, so we rented that from Redbox. I look at it as if the original release date did not occur. Patience is a virtue.
I heard the movie was a good movie and it made alot of money at the box office, so why make redbox wait? Can we say greedy? Well im going to wait not cause i cant afford the movie but cause its the principal of it. After it comes to Redbox and if I like it I will then buy it and add it to my movie collection.
I don't think it's fair that Redbox has had to do this. I had no idea what was going on when the Tuesday after 23rd came and there was no Avatar. Considering how many people do business through Redbox, even though it's cheaper I doubt they're really losing that much. I second everyone else who's said they won't be bullied into purchasing a DVD. I'll wait. There's hardly anything out worth paying the almost 20 bucks for anymore, as it is. And if Avatar is, I'll happily wait for the price to drop, thanks.
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In the late 1980s, the first stock I purchased was Blockbuster. Remember them? They transformed the home movie rental business which was a fragmented patchwork of independent rental stores. My first stock choice did wonderfully, numerous stock splits and the stock price grew for a long time. Yet, they did not take heed of a new, better technologies, such as Redbox. Fortunately, I sold my Blockbuster before its ultimate demise when Redbox busted Blockbuster. Redbox was better, faster, cheaper, etc. it killed its competition because the competition adapted too late to the new threats.
Yet, Redbox, unless they change quickly, will suffer the same fate. It has been a long time since I rented a movie from Redbox, using alternatives such as Netflix or Amazon Prime, but in late April I rented my final Redbox movie. Let me explain why.
My daughter wanted to watch Avengers: Infinity War with friends before seeing the final Avengers the next day. Nice and easy, I rented the movie on the way home from dinner, received my emailed receipt immediately, took the movie home and forgot about it, I mean really forgot about it. A week later, while travelling out of town, cold chills swept over my body as I remembered the Redbox! I immediately called my daughter and asked her if it had been returned. Well, no, it had not. Upon returning, I returned to the Redbox to get the following receipt:
Yes, $20.50 to rent the movie, but hey, I earned 1100 points. As I said, this was my final installment of payments into Redbox. Yes, I could probably call and raise a stink and get a refund, or I could probably even get a free credit to rent a movie, but there is principle involved here. Yes, it is my own fault. But, why did Redbox not once bother to email or text me during the ten days to say "Hey, I hope you are enjoying your movie, don't forget to return it when done." Why? Because they made more money with me holding it for 10 ten days. Yet, they now have lost a customer, forever.
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