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Is Warner Trying to Remake The Video Rental Business?


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By : Thomas K. Arnold | Posted: 18 Jan 2010


Speculation continues to mount that Warner Home Video is working on a deal with Redbox that like its new arrangement with Netflix will impose a 28-day window on new releases in return for vastly cheaper product.

The two sides are not yet close to a final deal, sources close to the negotiations say. But they are talking, and that has industry insiders buzzing about a potential reshaping of the entire rental business.

If Redbox, like Netflix, agrees to a 28-day window with Warner, there’s a good chance other studios will follow. Ultimately, such a rental delay could even extend to brick-and-mortar retailers, insiders say, giving the sellthrough business a much-needed shot in the arm.

Under this “new order,” new releases would only be available for sale for their first 28 days on the market, so consumers who want the latest hit of the week would have no choice but to buy it — or wait a month for it to become available at rental. This could be a tremendous boon for the sellthrough business, since research shows 75% of a title’s sales typically occur in the first four weeks after release.

“It would put the brakes on the rental market and give sellthrough an advantage that would hopefully get us back on track with DVD sales, buying us time to allow Blu-ray to catch up,” said one high-ranking studio executive who asked not to be named.
 
Still, a lot of questions remain. Netflix, which generates about 30% of its business from new releases, bought off on the Warner deal by obtaining various concessions from the supplier, including cheaper prices and support for its digital initiatives. Redbox may be holding out for a lot more, since the kiosk chain’s business is much more heavily skewed toward new releases.
Then there’s the brick-and-mortar question. Blockbuster and Movie Gallery, the two big national rental chains, could conceivably agree to a rental window if their online and kiosk competitors have one — and if the studios drastically cut the cost of their product.

“It might even let Blockbuster finally get around to building a decent sellthrough business,” said one observer.

But independent rental dealers would be unlikely to accept any window, citing the First Sale Doctrine, and could thus indirectly benefit by being the only retailers carrying new releases for rent on street date — giving them an advantage over the big rental chains as well as Netflix and Redbox. 

In any case the conflict is heating up. Redbox’s lawsuits against Warner and 20th Century Fox Home Entertainment — which are centered on the studio’s attempts to keep wholesalers from selling new-release titles to the kiosk operator — were referred to a magistrate judge on Jan. 15 Parties involved in a civil trial must agree to refer a case to a magistrate judge, and typically do so to get to a trial more quickly.

Merriman Curhan Ford analyst Eric Wold said Redbox would likely only agree to a window if every other DVD outlet had the same deal. “If Redbox were to enter into a 28-day window, but consumers could still get those DVDs from the in-store segment … I’m not sure what would be worth doing that for Redbox, even if they were to receive a very significant reduction in the cost of those DVDs,” he said.

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