M&E Daily

Will Redbox’s Anti-Trust Suits Stick?

Twentieth Century Fox Home Entertainment and Warner Home Video are hitting back at Redbox in a Delaware federal court this week, filing motions to dimiss the anti-trust claims the kiosk vendor has brought against each studio.

Fox, which filed its response on Thursday, says Redbox is simply sore that it couldn’t “get the terms it wanted at the bargaining table” for the studio’s DVDs. (paidContent has a link to the full Fox filing.) Meanwhile, Warner Home Video will make its own motion to dismiss Redbox’s claim against it today, according to the New York Times.

In both suits, Redbox alleges that studio terms would have precluded the company from offering new-release DVDs at its $1-a-night rental rate. Fox sought to keep new releases out of kiosks for 30 days; Warner wanted a 28-day window.

Redbox continues to wage a third court battle with Universal, stemming from the studio’s demand of a 45-day window before new-release discs could be rented. The Delaware federal court denied Universal’s motion for dismissal in August.

Lawsuits notwithstanding, Redbox has ridden the recession to a 14% market share of the DVD rental business, according to its own estimate.

With nearly 18,000 kiosks now in operation, the Coinstar-owned company shows no signs of slowing down, installing a kiosk at another supermarket nearly every hour. The nightly rate undercuts everything from Blockbuster rentals and Netflix subscriptions to cable video-on-demand and iTunes downloads. That’s to the consternation of many studios, which argue that Redbox’s rock-bottom price is accelerating the DVD sales decline.

Concurrent with the proliferation of kiosks, consumer awareness and trial of the Redbox rental model is on the rise. First-time users of the service can register for a free rental at redbox.com, while return customers can sign up to receive monthly free movie codes via text message.

Redbox may rent physical discs, but it has plenty of digital marketing savvy. The company maintains a consumer-facing blog as well as a Twitter profile. A third-party iPhone app, meanwhile, enables users to reserve movies at their nearest Redbox machine.

Paramount, Sony Pictures, and Lionsgate all have struck agreements with Redbox in recent months. In announcing the multi-year Lionsgate deal, the studio’s Steve Beeks said Redbox would grow the DVD business by boosting impulse rentals and making discs available in more places — without dramatically impacting sales.

Obviously, not every studio shares Lionsgate’s view. During a conference call with investors in August, Chase Carey of Fox owner News Corp. said that Redbox poses “a real issue for us. I think having our product rented at a dollar in the rental window is grossly undervaluing it.”

The broader ramifications of Redbox on video rentals — via DVD as well as on-demand or download services — are not lost on industry incumbents. The rise of the $1-a-night model, said Netflix’s Reed Hastings in an April earnings call, is “not positive for us or for the industry as a whole.”

Studios may be split on the effects of the Redbox business model, but few consumers debate the kiosks’ convenience and uniformly cheap pricing. Rentals from Redbox kiosks (as well as machines under the secondary DVDXpress brand) earned Coinstar $189 million during the second quarter — more than doubling 2008 revenues, while growing same-store rentals by 33%.

Overall kiosk count could top 22,000 units by the end of 2009. The company’s expansion tear will continue into 2010: a new agreement with Kroger, for example, will see kiosks in another 2,400 supermarkets and convenience stores.