DVD Wars: Things Get Nasty at the Supermarket

The battle for your DVD rental dollars is accelerating. Redbox, the subsidiary of Coinstar (the friendly people who try to relieve you of the problem of rolling your coins lying around the house, for a fee of 10%), is filing suit against 20th Century Fox, because Fox is trying to displace Redbox from the list of players that get the earliest copies of DVDs to rent to its user base. The company is trying to prevent Redbox from renting new titles for the first 30 days after public release.

There is a similar lawsuit from Universal, as that company is also fearing the ‘little Redbox that could’. The movie industry, at large, is worried about the success of those little red places; worried that the customers will not buy DVDs because the renting is so cheap.

from Betanews

In the first such suit at the end of 2008, Universal Studios Home Entertainment allegedly attempted to limit the availability of its titles in Coinstar-owned Redbox movie rental kiosks. The studio wanted its DVD releases to be off limits to Redbox for the first 45 days after release. The studio believed Redbox’s $1 rentals have a devaluating effect on DVDs.

and from Barron’s

Redbox, the Coinstar (CSTR) unit which operates more than 15,000 DVD rental kiosks around the country, today announced that it has filed suit against 20th Century Fox over new proposed distribution terms which would prevent Redbox from renting the studio’s DVDs to consumers until at least 30 days after they are released to the public.
As I noted in my May 18 column in Barron’s, has a similar suit pending against Universal Studios. The issue: Redbox rents movies for $1 a day. The price is so low that the studios fear that consumer will be incented to stop buying DVDs, thus wrecking a lucrative component of studio revenues.
Not all of the studios are at war with Redbox; the company yesterday announced a multi-year distribution deal with Lionsgate, for instance.
But the issue is a serious one for Hollywood. In a blog post today, Pali Research analyst Richard Greenfield asserts that the Redbox business model “poses a substantial risk to the future of the movie industry,” since it sets an ultra-low price point for movie content. He contends the price is so low that it could incent retailers to discount down to zero to drive traffic.

The movie studios are looking in the wrong area, in my estimation, because the problem with DVD sales is not Redbox, it is the subpar quality of the Hollywood product these days. If anything, I would say the little red boxes might actually stimulate the sales of DVDs. In my family, the trip to Redbox is a happy one, and upon seeing a movie that might be viewable again, we usually buy a brand new copy of that movie. If we decide to convert to Blu-ray, you can bet that we will be renting a title before forking out the higher amount of cash for the Blu-ray title. This is a simple way of avoiding large disappointment, and in our case, promoting more DVD sales, not less.

If the movie studios would pull their collective heads out of the sand, they might see this, as I’m certain I am not alone in my thoughts and actions along this line. This is similar to the line that the music companies take with MP3s versus CD sales. I like CDs, so does my 19 year old son. So it is not something that the younger generation has grown out of. What the availability of MP3s does for me, is stimulate buying, because if I hear 3 songs from an album (yes, I still refer to it as an album, so sue me!) I will buy the CD.

People will buy the quality of CDs, and the permanence of CDs or DVDs, if what is on the media is worth it, if not, oh well. Of the many industries in the U.S. that were hyperinflated in the last 15 years or so, the movie industry is one of the worst. If you believe in natural selection, and believe it applies to companies as well, you must also believe that this period of adjustment is more than the fault of a little Redbox in the neighborhood supermarket.

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