Friday, August 14, 2009

DVD wars (CSTR)

AlphaNinja - This is an ugly battle, and it's exposing the disastrous decline in pricing power for major movie studios.

Redbox, owned by Coinstar (CSTR), has sued 20th Century Fox because the studio refuses to allow access to just-released DVD's:

"Redbox's cornerstone principles include providing customers with a convenient way to rent new release DVDs at an affordable price," said Mitch Lowe, president, redbox. "At the expense of consumers, 20th Century Fox is attempting to prohibit timely consumer access to its new release DVDs at redbox retail locations nationwide. Despite this attempt, redbox will continue to provide our consumers access to all major new releases including 20th Century Fox titles at our more than 15,000 redbox DVD rental locations." .

Time Warner is following 20th Century Fox's lead, albeit in a more friendly tone. Hollywood studios are petrified at the pricing effect that Rebox is having -->> $1 DVD rentals on new releases will have a huge effect on the lucrative DVD sales market, not to mention it may incent viewers to skip the theater, seeing as the "time till DVD release" shrinks. That pricing may drop to ZERO, as supermarkets will happily subsidize that dollar if it drives big traffic to their stores.

Coinstar purchased Redbox for about $150million (with more payouts in the future depending on performance) -->> it looks to have been a terrific move, as Redbox has quickly become a huge % of sales, and the lone division that is creating operating profits for Coinstar.

Not all studios are fighting Coinstar -->> Just a couple days ago Lionsgate signed a multi-year deal with Redbox:

On August 10, 2009, Redbox Automated Retail, LLC (“Redbox”), a wholly-owned subsidiary of Coinstar, Inc. (“Coinstar”), entered into a Home Video Lease Output Agreement (the “Letter Agreement”) with Lions Gate Films, Inc. (“Lionsgate”). Redbox estimates that it will pay Lionsgate approximately $158 million during the term of the Letter Agreement, which is expected to last from September 1, 2009 until August 31, 2014. However, at Lionsgate’s discretion, the Letter Agreement may expire earlier on August 31, 2011.

Under the Letter Agreement, Redbox agrees to license minimum quantities of theatrical and direct-to-video DVDs for rental at each of the more than 15,000 locations that have a Redbox DVD-rental kiosk owned and/or operated by Redbox in the United States. The DVDs licensed from Lionsgate are expected to represent approximately 7.4% percent of the total DVDs licensed and purchased by Redbox for 2009. Under the Letter Agreement, Redbox should receive delivery of the DVDs by the “street date,” the initial date on which Lionsgate first makes available a motion picture on a rental basis to the general public for the purpose of non-commercial home entertainment viewing.

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