Redbox says alternate DVD artwork is legal

PHYSICAL: Disc covers and labels are either original or used with permission, company says

By Danny King -- Video Business, 12/29/2009

DEC. 29 | PHYSICAL: Redbox refuted an analyst’s assertion last week that its use of alternate artwork on DVDs from studios such as Warner Home Video and Universal Studios Home Entertainment during the first few weeks of their titles’ release violates copyright laws. Meanwhile, the Coinstar unit appears to be picking its spots when it comes to so-called workaround agreements to get street-date titles from studios with delayed release windows.

The Coinstar unit has to use different artwork than what retailers such as Blockbuster and Best Buy get from Warner, Universal and 20th Century Fox Home Entertainment because those studios won’t distribute directly to movie-rental kiosks until at least four weeks after street date. Because the artwork Redbox uses is designed to look similar to that of the DVDs going to non-kiosk retailers, the company may be violating copyright laws, Pali Research analyst Richard Greenfield wrote in a note to clients last week.

Because Redbox creates the artwork, though, it is legal, according to a company spokeswoman.

“Artwork created by Redbox is either original or is used with permission,” said Redbox spokeswoman Laura Dihel said. Dihel didn’t elaborate on how the alternate artwork is created.

The largest movie-rental kiosk operator, which has lawsuits against Universal, Warner and Fox, is using so-called workaround agreements with retailers such as Walmart and Costco to get new titles from the three studios, which account for about 40% of U.S. DVDs.

Although the agreements to get the DVDs are legal under the first sale doctrine, using either the studio-provided artwork or alternate but similar artwork may not be, Greenfield wrote in his Dec. 22 note.

“Redbox is already disadvantaged by not having access to the actual cover art, however, their replacement art is clearly designed to be similar to the original, without showing actual actor/actress faces,” Greenfield wrote. “We simply wonder whether they are allowed to go as far as they are going with replacement cover art.”

Meanwhile, Redbox appears to be factoring in box-office success when it comes to stocking titles from the three studios during the week of their street date, Merriman Curhan Ford analyst Eric Wold wrote yesterday.

The company didn’t stock any copies of Fox-distributed (500) Days of Summer and All About Steve, which were released on DVD Dec. 22 and had a combined $66 million in U.S. box-office receipts earlier this year, according to Wold.

By comparison, week-earlier new titles including Warner’s The Hangover and Universal’s Inglourious Basterds were both stocked in more than 85% of Redbox kiosks early in the week, though most copies were checked out by the end of the week, Wold wrote in a Dec. 21 note to clients. Those titles combined grossed almost $400 million in U.S. box-office receipts.

The lack of Redbox DVD copies of Days and Steve “was probably due to the movies’ relatively low box-office revenue,” Wold wrote. 

Redbox declined to comment specifically about the Merriman report though did say it factors in things like box-office performance and estimated return on investment when stocking new DVD titles.