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Analyst: Redbox Could Sign With Retailer

12 Oct, 2009 By: Chris Tribbey

Redbox could seek a “white knight” retailer to supply it with DVDs from the three major studios the kiosk operator is suing for withholding new releases, Eric Wold, analyst with Merriman Curhan Ford, said Monday.

20th Century Fox Home Entertainment, Universal Studios Home Entertainment and Warner Home Video are prohibiting their wholesalers from selling to Redbox unless the company agrees to keep new releases out of its kiosks from 28 to 45 days. While Redbox said it is negotiating daily with the studios to bring their new releases direct to the kiosks, it has promised to stock new releases from those studios without their permission, buying from other sources.

Wold said the overhead of having employees buy those studios’ DVDs at retail and readying them for the kiosks is negatively impacting Redbox, and Redbox is risking not having enough copies of new releases from those studios. He suggests that Redbox approach Wal-Mart, Best Buy or Target and work out a deal with them to buy directly from one of them.

“We believe numerous DVD retailers would find those revenues quite valuable,” he wrote. “For this reason, we believe that a major DVD retailer … could enter into a corporate-level DVD supply agreement with Redbox. This retailer could access an increased number of DVD copies through its normal channels and then sell those directly to Redbox.

“This would avoid Redbox having to visit individual stores and give the company access to a greater number of copies.”

Wold suggests Wal-Mart would be the most likely candidate, since Redbox machines are already installed in most Wal-Mart store locations, and the retailer has a 40% DVD market share.

Citing the First Sale Doctrine, Wold suggests a retailer could legally sell DVDs to Redbox in bulk.

“Could the studios fight against the retailer’s actions? Of course, the studios could and probably would object to a DVD retailer taking this course of action,” he wrote. “However, given that some retailer chains actually dominate a significant portion of the DVD sellthrough market, we believe the power would quickly shift to the retailer. Who has the greater amount of revenues to lose from forcing their hand?”

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