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Lionsgate Inks Redbox Deal

11 Aug, 2009 By: Erik Gruenwedel

Lionsgate has signed a five-year distribution deal with $1-per-day kiosk vendor Redbox worth approximately $158 million.

The payment is spread over five years, according to an Aug. 11 Securities and Exchange Commission filing from Redbox parent Coinstar. The deal calls for Redbox to stock minimum quantities of new theatrical and direct-to-DVD titles from the studio. The DVDs will represent roughly 7.4% of total discs purchased by Redbox in 2009, according to the filing.

The agreement runs from Sept. 1, 2009, to Aug. 31, 2014, with Lionsgate having the option to opt out on Aug. 31, 2011. It also assures Redbox of receiving new Lionsgate releases by street date.

“The multiyear agreement with Lionsgate underscores our commitment to creating winning relationships for our customers and studio partners,” said Redbox president Mitch Lowe.

Lionsgate president and COO Steve Beeks, who addressed the deal Aug. 11 during an analyst call, agreed the arrangement could put the Santa Monica, Calif.-based mini-major at odds with other leading studios.

“Our industry is very divided [over rental kiosks],” Beeks said.

Indeed, since Sony Pictures Home Entertainment last month became the first studio to ink a groundbreaking $460 million five-year pact with Redbox to provide up to 20% of the kiosk’s new release and catalog titles, studios have drawn lines regarding the distribution channel.

Lionsgate’s deal, as did Redbox’s with Sony, does not include Blu-ray Disc.

20th Century Fox Home Entertainment last week issued a decree to distributors not to supply rental kiosks with Fox titles until 30 days after street date. Warner Home Video is said to be considering a similar stance after Time Warner CEO Jeff Bewkes questioned the wisdom of undercutting packaged media’s value through rental kiosks.

Bewkes has hinted at a similar 30-day delay for rental kiosks.

Universal Studios Home Entertainment is still embroiled in a lawsuit with Redbox over distribution of its titles.

Eric Wold, analyst with Merriman Curhan Ford in New York, who covers Coinstar, said the deal was a "smart opportunity" for Redbox.

He said agreements with Lionsgate, Sony (and he thinks shortly Disney) do not require Redbox to make any upfront payments or pay a premium to be involved in the deal.

“Redbox would’ve spent more than those quoted amounts over the respective five-year periods if they didn’t strike deals with the studios,” Wold said. “Sony and [likely] Lionsgate are getting the DVDs to Redbox at cheaper prices, and Redbox does not have to implement any workaround programs to get the product like they had to with Universal. These are great deals for Redbox.”

Indeed, Eric Handler, analyst with MKM Partners in Greenwich, Conn., questioned how Redbox will be able to handle the financial commitments that will only increase if a reported deal in works with Disney and others come to fruition.

“Potentially they could have well north of a $1 billion worth of commitments over the next five years,” Handler said. “That’s a lot of money for guarantees despite their growth.”



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