By : Erik Gruenwedel | Posted: 30 Nov 2009
Availability of select new release DVDs at Redbox kiosks is beginning to wane due to last month’s implementation of a 28-to-30-day embargo by several studios, according to Pali Capital analyst Richard Greenfield.
Despite efforts by Redbox to acquire new releases from Universal Studios Home Entertainment, 20th Century Fox Studios Home Entertainment and Warner Home Video through third-party retail channels (as allowed via First Sale Doctrine), recent titles such as Ice Age: Dawn of the Dinosaurs, Orphan, My Sister’s Keeper, Aliens in the Attic and Bruno underperformed in first week rentals at Redbox relative to the video rental industry as a whole, according to Greenfield.
More importantly, the analyst believes Redbox is acquiring the majority of the embargoed titles (about 20 DVDs per kiosk) through Wal-Mart, which Greenfield said amounts to about 22 million DVDs being purchased for 21,000 kiosks.
That figure could escalate to 30 million discs with the planned implementation of 30,000 kiosks by the end of 2010.
“What seemed ‘doable’ (work around-wise) with just Universal [titles], is starting to sound very difficult to comprehend,” Greenfield wrote in a note.
The analyst wondered when DVD rentals at Redbox and other kiosks might begin to affect disc sales at Wal-Mart, widely considered the largest retailer of Hollywood movies and TV on DVD.
“Should studios start treating Wal-Mart as a wholesaler versus a retailer?” Greenfield wrote.
Walt Disney chairman and CEO Bob Iger, when asked in a recent financial call about Wal-Mart and other big box retailers cutting new release DVD prices to around $10, said retailers had the right to mark prices as they saw fit.
Regardless, Greenfield believes the relative scarcity of select new release titles will not conjure flashbacks to Blockbuster Video in the 1990s when the No. 1 DVD rental company struggled to justify empty new release shelves and late fees.
The analyst said he wasn’t sure of the immediate impact to Redbox’s operating income but said that should the kiosk vendor lose the three lawsuits filed against Universal, Warner and Fox, the scenario could be a lot darker.
“We believe over time disappointing consumers is unlikely to be a great business model, with blockbuster titles such as Warner’s Harry Potter and the Half-Blood Prince and The Hangover to be released in the weeks to come,” Greenfield wrote.