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Analyst: Studios Should Embargo Disc Rentals Up to 90 Days

28 Oct, 2011 By: Erik Gruenwedel

With Warner Home Video set to impose a 28-day delay on new releases to Blockbuster, BTIG Research analyst Richard Greenfield says studios should delay titles to Redbox and other physical channels up to three months

If Hollywood wants to save retail sales of movies from the clutches of low-margin rental channels such as kiosks, it should withhold new releases to all physical rental chains from 60 to 90 days, an analyst said.

Richard Greenfield, analyst with BTIG Research in New York and long-time critic of the studios’ (notably Disney) willingness to grant Redbox access to new releases on street date, said Hollywood should start playing hardball. It’s a message Warner Home Video, Universal Studios Home Entertainment and 20th Century Fox Home Entertainment have taken to heart, with Sony Pictures Home Entertainment beginning to take notice.

Specifically, the current 28-day embargo Warner, Universal and Fox impose on Redbox isn’t enough to put the lid back on low-margin kiosks offering new release DVDs for $1 (now $1.20 at Redbox) a day at the expense of higher-margin physical and electronic sellthrough, and transactional video-on-demand, according to Greenfield.

Lionsgate, Sony and Paramount Home Entertainment have distribution agreements with Redbox mandating access to new releases on street date. Indeed, Paramount just extended its agreement with Redbox through 2014, Coinstar CEO Paul Davis told analysts Oct. 27. The aforementioned studios and Summit Entertainment and Anchor Bay Home Entertainment have deals through next year.

“We would like to see Warner Bros. and Universal begin the process of shifting all physical DVD rental chains to 60, if not 90-day windows in 2012,” Greenfield wrote in an Oct. 27 blog. “While Sony, Paramount and Lionsgate are unable or unlikely to follow suit, we would expect Fox to follow [Warner’s] lead and would hope Disney moves in that direction (Disney began to push back on kiosks in early 2011 by raising the price for day-and-date availability)."

The blog apparently contributed to a near 10% drop in Coinstar stock valuation early Oct. 28, despite the fact Redbox reported record results.

Separately, Greenfield said Warner shouldn’t accept ads to its Flixster movie recommendation website that tout Redbox. Specifically, the analyst is referring to a current ad from Totino’s Pizza that offers a free Redbox rental with the purchase of four pizzas. Interestingly, Flixster is the only way consumers of Warner sellthrough titles with UltraViolet can access them from the cloud-based digital locker.

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