Workarounds may not keep working for Redbox

It’s becoming more apparent just what it’s costing Redbox to “workaround” title delays imposed by three major studios, and the picture is not as rosy as the kiosk company’s very effective PR effort might make it seem.

The share price of Redbox parent Coinstar slipped 3.6% on Dec. 3 on investor skittishness about the effectiveness and costs of Redbox’s alternative title procurement strategies. This, after Redbox filed amended antitrust complaints against 20th Century Fox and Warner Bros. charging the studios with interfering with its ability to buy product at retail. The claims mirror those Redbox leveled earlier at Universal Pictures. 

In an 8-K filing with the SEC, Coinstar said that some Walmart, Best Buy and Target stores have been limiting sales to Redbox’s reps to as few as three copies per title, under pressure from the studios. While other stores in the same chain impose no such limits, “there can be no assurance that Redbox will be able to obtain new release DVDs in sufficient quantities or on financially advantageous terms or that attempts to restrict its new release DVD purchases will not be more widespread,” the filing said.

Meanwhile, fiercely independent Video Buyers Group is disseminating as much (negative) information as it can about Redbox’s challenges, including dissatisfied consumer comments from the Redbox Web site. According to a recent tally by VBG, only 1% to 2% of Redbox kiosks have titles from Fox, Universal and Warner on street date. Within one to two weeks, many of those studios’ titles are still in just 15% to 20% of Redbox kiosks. Causal relationships are difficult to pinpoint. Does Redbox have few copies of the delayed titles because it can’t get them? Or because it has no interest in supporting those studios beyond the most minimal copy depth required to satisfy its customers? 

In the midst of all this, Redbox’s Mitch Lowe and company are looking ahead, having early discussions with videogame publishers about kiosk rentals in an effort to avoid the roadblocks with games (still a test category for Redbox) that some studios are throwing up for movies.

The possibilities of digital delivery loom as well. Lowe told Wall Street Journal this week that Redbox is open to adding any sort of digital delivery (via kiosks or direct to the home) that proves to be a workable revenue stream, and he doesn’t see any studios being reluctant to deal with his company for digital rights, despite the litigation the company is involved in over rights to distribute physical product.

That is some rosy Redbox PR, for sure.

While the First Sale Doctrine gives Redbox the right to rent any physical product it legally acquires, there’s no similar workaround opportunity in digital. Redbox would have to get digital rights directly from the studios.

Will the studios need Redbox for distribution more than Redbox needs content?

I don’t know, but I suspect the outcome of the current fight over the distribution of physical product may provide a clue.

Posted by Marcy Magiera on December 3, 2009 | Comments (1)