Marketplace Scratch Pad

How you get your movies

Scott Jagow Aug 14, 2009

I’m a big film buff, so I consider this an important issue. There’s a battle going on right now over how and when DVDs are available to the public. And yes, I’m talking about Netflix and Redbox.

Redbox is the kiosk you see in the grocery store where you can rent movies for a dollar. It’s owned by Coinstar, the convert-your-change company. This week, Coinstar sued 20th Century Fox, claiming Fox is blocking new releases from going to Redbox. Coinstar and Universal Studios are headed to court over the same issue. Universal told its distributors to wait 45 days before delivering new releases to Redbox.

The studios believe the $1 rentals might undercut more lucrative rentals (at Blockbuster, for example), diminish the “value perception” of their movies and kill DVD sales.

But this isn’t just about Redbox. This week, Warner Bros. changed its policy on new releases. From the Los Angeles Times:

In a brief statement, Warner Bros. said Redbox and its competitors will have to wait 28 days after DVDs launch to offer new releases. It is imposing the same restriction on subscription rental companies like Netflix unless they agree to “a day-and-date revenue-sharing option.”

Here’s Motley Fool’s take on it:

Coinstar also has a legitimate gripe. If Blockbuster can rent at a higher price point — or add free or discounted in-store DVD exchanges to its Netflixesque offering — why is Coinstar the one being penalized for disrupting the value perception and being told what it can charge?

Some Wal-Mart stores have no problem housing Redbox kiosks. Do you think that the world’s largest retailer would allow that if the buck rentals were cannibalizing DVD sales?

This is going to be an interesting battle. I just hope that the studios realize that they are simply delaying the inevitable. As physical platforms give way to the broader acceptance of digital delivery, they’ll all be toast. Movie prices will fall, and physical kiosks will be harder sells.

The studios are all in different places on this. That’s why you can only download certain movies from Netflix, for example. The rest you have to get by mail on DVD. What Warner Bros. is saying above, is that unless Netflix does a deal, you won’t be getting new releases by mail either. Until 28 days later.

As for Redbox, Lions Gate and Sony have both signed deals to guarantee they’ll make their films available. The studios got $200 million and $460 million, respectively, for five years. That’s a lot of $1 rentals.

I don’t blame the studios for trying to protect their DVD turf, but unless they get out in front on the downloading thing, well, they know what happens. Redbox might be least of their concerns.

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