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Analyst: Redbox Extension Good for Paramount, Bad for Hollywood


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By : Erik Gruenwedel | Posted: 15 Dec 2009


Paramount Home Entertainment’s extended trial through next June with kiosk operator Redbox should help the studio generate $217 million in pre-tax earnings for 2009, up 90% from pre-tax earnings of $114 million in 2008.

Pali Capital analyst Richard Greenfield said the near-term boost to studio profits underscores a win-win situation for Paramount because Redbox has been contractually obligated to showcase so-called box office “bombs” such as Imagine That, which generated about $16 million theatrically.

The studio’s $575 million distribution deal with Redbox is predicated this quarter primarily on box office hits Transformers: Revenge of the Fallen, Star Trek, G.I. Joe: The Rise of Cobra and Paranormal Activity.

Greenfield sees a similar scenario in 2010 for Paramount underachievers The Lovely Bones and Up in the Air, among others.

Indeed, Imagine That was the No. 2 Redbox rental the week of its Oct. 11 release, while just fourth among the general rental market. The title failed to make the top five sellthrough new releases.

The analyst said that should Universal Studios Home Entertainment, 20th Century Fox Home Entertainment and Warner Home Video prevail in 2010 with litigation aimed at windowing $1-per-day DVD kiosk rentals, Paramount’s earnings will blossom in the interim despite its association with kiosks not appearing to be “in the movie industry’s best interests.”

Indeed, Greenfield projects Paramount’s 2010 pre-tax earnings to decline 14% to $197 million from $230 million due to a slate largely based on third-party distribution deals, including Iron Man 2 (with Marvel Entertainment), How to Train Your Dragon and Shrek Goes Fourth with DreamWorks Animation.

“With high margin ancillary revenue building into 2010 (from 2009’s successful releases) and [the Dec. 14] extension of Paramount’s Redbox deal, we believe there is the potential for Paramount’s film profits to exceed our forecast in 2010, particularity if Shutter Island works (a February 2010 film, so the vast majority of its profit will be captured within the calendar year),” Greenfield said in a note.

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