August 27, 2009

More Studios Join Kiosk-DVD Rental Trend, Others Rebel

Paramount has opted to join the ranks of other big movie studios like Lions Gate Entertainment Corp. and Sony Corp. by contracting to allow Redbox "” a company that rents DVD's for a buck a night via automated kiosk machines "” to carry their films.

Paramount Home Entertainment Inc. announced on Tuesday that they have started a trial licensing program that will allow Redbox to rent and sell their DVD's on the day of their official national release through their self-service kiosks.

The trial period will last through the end of the year, after which Paramount will decide whether to extend the contract through 2014.  The Los Angeles-based subsidiary of Viacom Inc. will be collecting extensive rental information from Redbox over the coming months that it will use to determine the profitability of the prospective partnership.

Redbox President Mitch Lowe has referred to the initial trial period as a "positive step with Paramount."

Should the deal not pan-out in the long term, however, Redbox has agreed in advance to destroy any Paramount DVD's removed from their kiosks after the end of the year.

Coinstar Inc., Redbox's parent company, said on Tuesday that Paramount could expect estimated receipts of roughly $575 million if the deal is extended to 2014.  Redbox currently owns and operates over 15,000 kiosks across the country, and if the deal goes through, they say that they say that Paramount DVD's will constitute almost 20 percent of the total DVD's to be licensed and purchased this year to stock their machines.

The announcement of the prospective deal with Paramount comes just weeks after Lions Gate entered an agreement to supply Redbox with DVDs from September of this year through August 2014.  Sony's movie branch announced a similar 5-year deal in July.

Lion's Gate is expected to pull down roughly $158 million from the deal over the next five years, while Sony is expected to earn a whopping $460 million over the same period.  Both companies, like Paramount, will retain an option to pull out after two years should the venture prove unprofitable.

A number of other Hollywood studios, however, have taken a somewhat different stance towards Redbox's novel marketing strategy.  Universal Pictures and 20th Century Fox have threatened to stop supplying DVDs to Redbox unless they agree wait 45 days after the official release of new DVDs before stocking them in their kiosks.  The tactic is a transparent attempt to prop up high demand for high-margin sales of newly-released DVDs.

Both Universal and 20th Century Fox are currently entangled in legal wrangles with Redbox after the company filed lawsuits against the two studios for their attempts to keep new DVDs out of their kiosks. 

Last week, a federal judge declined a petition submitted by Universal to drop Redbox's suit.

Redbox has stated that if the studios decide to stop providing them with new DVDs, they will simply start stocking their kiosks with DVDs provided through third-party retailers.


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