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Fox, Universal Make Deals With Redbox

22 Apr, 2010 By: Chris Tribbey

Kiosk operator Redbox came to terms with both 20th Century Fox Home Entertainment and Universal Studios Home Entertainment April 22, signing multiyear distribution agreements that delay new-release DVDs for 28 days after street date, further strengthening the studios’ push to create a sellthrough window for DVD.

The agreements end the legal dispute Redbox had with both studios over their attempts to delay new-release DVDs at the rental kiosks. Universal had sought a 45-day window, while Fox had been seeking a 30-day delay. The agreements mirror one made between Warner Home Video and Redbox in February, which also involves a 28-day window, and also ended a lawsuit between those two companies.

The announcements bring to a close a contentious battle over rental windows with the kiosk operator, which first started in mid-2008 when Universal told Redbox it couldn’t rent the studio’s DVDs until 45 days after street date.

The battle with Redbox has since had an effect on Netflix, with the DVD-by-mail company agreeing to a 28-day window for titles from Universal, Warner and Fox.

Importantly for Redbox, the agreements end the company’s costly workaround programs. Redbox had been sending employees to retail stores on Tuesdays to buy copies of DVDs from the studios, since the studios prohibited their wholesalers from selling to Redbox.

Both new agreements cover Blu-ray Disc as well. For Universal, the first title to be delayed under the agreement is the April 27 release of It’s Complicated. For Fox, the first title delayed under the agreement is the April 22 release of Avatar. Both agreements call for Redbox to destroy titles after their rental lives are up.

“While this arrangement mutually benefits our two companies, it’s more importantly a win for consumers who will now have increased access to Universal films at more than 20,000 Redbox locations nationwide,” said Craig Kornblau, president of Universal Studios Home Entertainment. “In forging this pact, we have successfully established balanced terms for our rental products in Redbox kiosks that provide consumers value and convenience in movie rentals.”

Mike Dunn, president of 20th Century Fox Home Entertainment, added, “This arrangement upholds our retail and rental strategy, while allowing us to continue to deliver the best available movies and TV shows in the market to our customers. We aggressively seek out ways to provide the greatest access to all our content while ensuring it makes the best sense for our business.”

Redbox president Mitch Lowe added: “[These] agreements enable Redbox to fulfill our commitment to providing consumers affordable and convenient home entertainment.”

Analyst Eric Wold with Merriman Curhan Ford in New York, who predicted a possible deal between Fox and Redbox on Earth Day earlier this month, said the agreements would be accretive to Coinstar's full-year guidance since they eliminate further need of a workaround program.

The analyst said a deal with Fox was imperative given the studio’s theatrical success this year.

“This removes a major cloud hanging over Coinstar shares,” Wold said. “There will always be a question near-term about just how much of an impact this will have on consumer usage of Redbox and if they’ll wait the 28 days or shift back to video stores or VOD. But given the $1-per-day price point, I think most consumers will learn to wait the 28 days and choose other movies in the meantime.”

Redbox parent Coinstar, in filings with the Securities and Exchange Commission, estimated that it would pay Fox and Universal $394.5 million and $82.8 million, respectively, over the lives of the deals. The agreement with Fox lasts through April 21, 2015, though the studio has the option to cancel the agreement April 21, 2013. The agreement with Universal runs through April 21, 2012.

Redbox has inked deals with Paramount Home Entertainment, Sony Pictures Home Entertainment and Lionsgate that don’t call for a window for new release titles. The five-year deal with Sony is worth an estimated $460 million, the five-year deal with Paramount is worth an estimated $575 million and Lionsgate’s five-year deal is worth an estimated $158 million. The deal with Warner lasts through 2012 and is worth an estimated $124 million.

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