By : Erik Gruenwedel | Posted: 27 Oct 2009
egruenwedel@questex.com

With the major studios immersed in discussions to completely revamp the home entertainment release hierarchy due to slumping packaged media sales, Pali Capital analyst Richard Greenfield said $1-per-day rental kiosks should take a place at the end of the line.

Greenfield, an early advocate for preventing rental kiosks distributing new releases, said that in order to protect DVD (and Blu-ray Disc) sales, new releases should be sequenced according to their profitability to studios.

Specifically, the analyst would prioritize new releases in the following order:

1.    Digital sale of movie downloads through iTunes, Amazon and other services.
2.    Physical sales of DVD and Blu-ray Disc
3.    Cable video-on-demand (VOD) and digital rental via iTunes and others.
4.    Physical rental through Blockbuster, Movie Gallery, Hollywood Video, etc.
5.    Physical by-mail rental via Netflix and others.
6.    Physical rental through kiosks.

“Why should [consumers] have easy access to renting [a new release] movie for $1 per day the same time it hits Wal-Mart for sale at $16?” Greenfield wrote in a note. “We understand what a consumer wants. We just see no reason why the studios should enable that behavior.”

While the analyst admits his home entertainment distribution pecking order would amount to a “studio dream,” he said the studios must prevail in their legal battles with Redbox.

Indeed, Greenfield said he is increasingly confident Universal Studios Home Entertainment, Warner Home Video and 20th Century Fox Home Entertainment will prevail in their separate legal cases with Redbox.

He cited a recent National Law Journal article, which said Redbox’s legal challenges wouldn’t hold up.

“The real complaint is Fox won’t sell DVDs to Redbox on the terms Redbox demands, and that is not in our view an antitrust violation,” said the article.

Greenfield said Sony Pictures Home Entertainment, Lionsgate and Paramount Home Entertainment, which extracted exclusive new release deals with Redbox worth a collective $1.1 billion over five years, should all opt out of their agreements when Redbox loses.

The analyst said studios should renegotiate new terms with online DVD rental pioneer Netflix, which continues to gain subscribers and enjoy rock star status on Wall Street despite the recession.

Greenfield included Blockbuster in renegotiated revenue-sharing deals with the studios to carve out a unique release window (Blockbuster offers sellthrough, by-mail, electronic and traditional rental).

“The studios may also see an opportunity to expand their relationship with Blockbuster into the kiosk arena, where management appears more than willing to accept a window and is even working on building kiosks with greater title depth to drive rentals,” Greenfield wrote.

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