Analyst: Look For Disney, Universal Deals With Redbox Next26 Aug, 2009 By: Chris Tribbey
Now that Redbox has signed a revenue-sharing deal with Paramount, Universal and Disney have added incentive to ink deals with the DVD rental kiosk operator, according to Eric Wold, analyst with Merriman Curhan Ford.
Disney has an ongoing, informal arrangement with Redbox, while Universal and Redbox are battling in court over the studio’s refusal to allow its distributors to sell to Redbox without a 45-day blackout period for new-release titles.
“We would not be surprised to see a more formal distribution agreement announced [between Disney and Redbox], further demonstrating studio support for this channel,” Wold wrote to investors Aug. 26. “In addition, on the Universal legal front, now that the court is allowing Redbox’s antitrust claims to continue, we would not be surprised to see an agreement with Universal be announced prior to any court ruling. We believe it would be in Universal’s best interest to return to the table and negotiate a distribution deal with Redbox as opposed to continuing the legal fight and potentially losing an antitrust claim.”
Wold points out that when you combine rental share data from Paramount, Disney, Lionsgate and Sony (the latter two recently signing multiyear purchase agreement deals with Redbox), plus that of smaller studios, “Team Redbox” represents 54.4% of 2008 rental industry revenue.
“We believe the expected ROI for a revenue-sharing agreement vs. a purchase agreement would be relatively similar for Redbox with the added benefit of less upfront working capital requirements,” Wold wrote.
Redbox estimates that it will spend a combined $1.19 billion on DVDs over the course of its multiyear agreements with Paramount ($575 million), Sony ($460 million) and Lionsgate ($158 million), should all those agreements continue into 2014. However Wold stressed that those figures are estimates of what Redbox would likely pay “in the normal course of business without such deals in place.”
“The Sony and Lionsgate deals are for the purchases of DVDs, and the Paramount deal is the expected amount of revenue-sharing over the deal term,” he said. “It's no different than McDonald's signing an agreement with bun suppliers to pay them $1 billion over 10 years based on their expectations of hamburger sales.”