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Paramount Comes to Terms With Redbox

25 Aug, 2009 By: Thomas K. Arnold

Paramount Home Entertainment has become the third studio to play ball with Redbox Automated Retail LLC, entering into an agreement that allows the company to continue renting new Paramount DVDs in its nationwide fleet of more than 15,000 vending machines.

Similarly to previously announced deals with Sony Pictures Home Entertainment and Lionsgate, Redbox will continue to be able to buy Paramount titles (DreamWorks Animated titles are not covered) the day they are released, on the condition that those titles are subsequently destroyed and not sold on the used-DVD market.

But unlike those two earlier deals, the Paramount-Redbox arrangement only lasts through the end of this year and calls for titles to be purchased on a revenue-sharing basis only. It also specifically calls for Paramount to receive full access to Redbox rental data, which the studio will use to evaluate the impact of rental kiosks on the sellthrough business. At the end of the four-month trial period, Paramount has the right to extend the program until 2014, with an out clause after two years.

If the agreement continues through 2014, Redbox estimates it will pay Paramount approximately $575 million for the studio's DVDs, according to a Securities and Exchange Commission filing by Redbox parent Coinstar. Paramount DVDs are expected to represent about 18.5% of total DVDs licensed and purchased by Redbox for 2009, according to the filing.

“This gives us an opportunity to evaluate the impact of Redbox on our sales business,” said Rob Moore, the vice chairman of Paramount who oversees home entertainment. “We will now have access to rental information and sales information at a number of locations that offer both, which we will be able to evaluate in context of our other locations.”

Moore did not specifically mention Wal-Mart, but the mass merchant chain is ground zero in the brewing war between the studios and Redbox kiosks. Three other studios — Universal Studios Home Entertainment, 20th Century Fox Home Entertainment and Warner Home Video — are withholding new DVD releases from Redbox for 28 to 45 days, citing fears that the proliferating rental kiosks are hurting DVD sales.

These fears were fueled by a midyear report from DEG: The Digital Entertainment Group that showed DVD sales as of June 30 were down 15%, while rental spending was up 8.3%, according to Rentrak.

Studio executives fear further cannibalization now that Redbox machines are being rolled out in Wal-Mart stores. Wal-Mart is the nation’s No. 1 retail seller of DVDs, with about 40% of the total sales business.

Redbox has filed antitrust suits against each of the three studios that are not providing it with new product.

Mitch Lowe, president of Redbox, calls the Paramount deal “a positive step.” He said the deal “ensures that our customers will have increased access to some of the biggest titles of the year,” including Transformers: Revenge of the Fallen (Oct. 20), Star Trek (Nov. 17) and G.I. Joe: The Rise of Cobra (expected in December).

He added that, while he couldn’t discuss the details of the arrangement with Paramount, “What I can tell you is that Redbox is committed to working with studios to form sustaining, mutually beneficial relationships. We are confident in our proven, efficient business model and look forward to this trial [and that Redbox] will provide detailed rental data of Paramount titles to evaluate the impact and viability of the program real-time.”

The NPD Group said Redbox kiosks finished the first half of this year with a 19% share of the rental market and expects that percentage to climb to 30% by next year.


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