M+E Daily
Redbox Relents, Signs Window Deal With Warner
Story Highlights
Furthering its efforts to establish an exclusive sales window for DVDs, Blu-ray discs, and video-on-demand services, Warner Bros. Home Entertainment has reached a two-year deal with Redbox that keeps the studio’s movies out of the company’s rental kiosks for their first four weeks of release.
As part of the agreement, which runs through Jan. 31, 2012, Redbox has also dropped its antitrust lawsuit against Warner, which it filed last August. The deal may prove to be a template for settling litigation Redbox still has pending against the home entertainment units of Twentieth Century Fox and Universal Studios.
While both companies tout the settlement as a victory, Warner is the one that emerges with what it sought all along: a containment of the kiosk company at the tail end of home entertainment distribution.
In addition to shoring up DVD and Blu-ray sales, the studio is hoping that its new window strategy will spur the video-on-demand market, from which it could earn a relatively high profit margin. From Warner’s perspective, the kiosk serves as the market’s low-margin dollar bin (or dollar-a-night, as it were).
For Redbox, renting DVDs was a $774 million business in 2009. The company says it will benefit primarily from reduced product costs and optimal stock levels of Warner movies. In other words, Redbox will no longer have to send “runners” to purchase copies of new-release DVDs at retail cost from local Target and Wal-Mart stores to keep its kiosks well-stocked. Such a “workaround” solution has put pressure on Redbox’s consumer pricing model, as well as its bottom line.
Warner also is supplying Redbox with Blu-ray discs, which the kiosk vendor is currently testing in select markets.
Shares of Redbox’s Coinstar parent traded higher following news of the Warner deal, partially on hopes that Redbox will strike similar settlements with Fox and Universal. The four-week window is the central issue in those suits.
An end to the litigation would bring an end to Redbox’s expensive retail “workaround” as well. Earlier in February, Coinstar CEO Paul Davis told analysts that the workaround to secure discs from Warner, Fox, and Universal cost Redbox as much as $25 million during the fourth quarter of 2009, against revenues of $232 million.
