Hollywood Divided Over How to Handle Redbox DVD Kiosks

A Redbox dispenses a rental DVD at a Los Angeles area 7-Eleven store.
A Redbox dispenses a rental DVD at a Los Angeles area 7-Eleven store. (By Damian Dovarganes -- Associated Press)
Associated Press
Monday, August 10, 2009

LOS ANGELES -- Hollywood studios are split over Redbox, the $1-per-night DVD rental kiosk company: They could supply it with cheap wholesale discs and ride its massive growth, or starve it in the hopes of preserving higher-priced purchases.

News Corp.'s Twentieth Century Fox came down on the side of starvation last this week, joining General Electric's Universal Pictures, whose withholding of discs prompted a lawsuit.

On the flip side, Sony's movie division signed a five-year deal last month to supply Redbox. As part of the deal, Redbox will get discs more cheaply but will have to destroy copies after their rental lives end rather than sell them as "previously viewed" for $7 apiece, as it has done in the past.

Many other studios are taking a wait-and-see approach.

Although fans of the self-service vending machines may not notice a difference, the issue is crucial to both Redbox and the studios.

Lack of studio supply forces Redbox to buy discs from regular retailers -- just as an individual might go to Wal-Mart or Best Buy -- cutting into profits and stifling its growth. The studios want to keep their consumers happy, but are concerned that the cheap kiosks could erode demand for higher-priced DVD purchases, which are the lifeblood of the industry.

On Wednesday, Fox ordered its wholesale distributors to stop supplying Redbox until 30 days after movie discs are released for sale. The policy takes effect Oct. 27.

News Corp. Chief Operating Officer Chase Carey said $1 rentals were "grossly undervaluing" its product.

Universal Pictures insisted on a 45-day delay, which Redbox refused, and the studio cut off Redbox's supply last December. Redbox sued to prevent Universal from stopping its supply, claiming antitrust laws had been broken. A federal judge in Delaware is expected to rule soon.

Redbox President Mitch Lowe is trying to convince studio executives that the machines help sell more movies and says more than a third of his customers rent movies before deciding to buy.

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