M+E Daily

Analyst: Redbox’s New-Release Workaround Strains Under Studio Embargo

With Redbox now unable to obtain new release DVDs from three major studios, the offering in the company’s network of 21,000 kiosks is beginning to suffer, according to Pali Research analyst Richard Greenfield.

In late October, Warner Bros. and Fox joined Universal in precluding Redbox from obtaining new-release titles from distributors, in an ongoing battle for control over the DVD business. Greenfield believes Wal-Mart is the chief de facto supplier of new release DVDs, with the company buying titles in bulk at retail and stocking kiosks under the First Sale doctrine.

One Pali Research source witnessed a Redbox representative purchase 100 copies of Fox’s “Ice Age: Dawn of the Dinosaurs” with a gift card at a local Wal-Mart store following the DVD’s Oct. 27 release.

Greenfield estimates that to keep its kiosks fresh with new releases from studios that do not distribute to it, Redbox is purchasing 20 DVDs per kiosk per week at retail. In other words, a “doable” workaround for a single studio refusal to supply is beginning to sound “very difficult to comprehend,” Greenfield writes in a note (registration required).

What’s more, Redbox’s most-rented DVD charts have begun to diverge from those of the industry overall. That leads Greenfield to conclude “that Redbox is having difficulty acquiring enough new release DVDs from Universal, Fox and Warner Bros. to meet consumer demand.”

Wal-Mart’s role in the Redbox scheme remains unclear. If Pali’s estimation of the relationship is accurate, the retailer — which remains “the largest purchaser of DVDs for every Hollywood studio” — is on the way to becoming more of a studio wholesaler, the analyst says.