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Analyst: Redbox Window Boon to Blockbuster, VOD

By : Erik Gruenwedel | Posted: 19 Feb 2010

The recent capitulation by Redbox to accept a 28-day delay for new-release DVD/Blu-ray Disc movies from Warner Home Video presents a near-term win for Blockbuster and other video stores, video-on-demand (VOD) and Apple, an analyst said.

In addition to myriad indepedent video stores and surviving Movie Gallery/Hollywood Video locations, Blockbuster is largely immune from the embargo by virtue of a multiplatform distribution strategy that allows consumers to rent and buy movies in-store, by mail, and electronically, in addition to kiosk.

The Dallas-based No. 1 DVD rental service alone generates about $1 billion annually in revenue to studios, at margins significantly higher than the $1 DVD rental at Redbox can provide.

In addition, cable operators touting new-release movies day-and-date with packaged-media availability (a strategy spearheaded by Warner), as well as Apple’s iTunes store, will benefit from the expedited access to 20% of home entertainment’s annual releases, according to Pali Capital analyst Richard Greenfield.

“We live in an ‘I want it now’ world, and waiting 28 days for Harry Potter is simply not a compelling consumer proposition,” Greenfield wrote in a note.

The analyst downplayed notions by other observers that Blockbuster too would be subjected to a new-release embargo, adding that such a delay would further hinder the already fiscally challenged rental service.

“We suspect the studios actually hope this stabilizes Blockbuster’s finances in the near-term,” Greenfield wrote.

While the retail window provides a unique marketing angle for Blockbuster and VOD operators (including Blockbuster On Demand) to exploit, Warner will also be able to repurpose and amortize early disc returns for greater margins when released to Redbox and Netflix.

“Studios could essentially utilize returns from the retail channel to fill the kiosks, as 28 days would be more than enough time to get Wal-Mart/Target returns processed — turning retailer returns into kiosk revenue,” Greenfield wrote.

Blockbuster reports fourth quarter (ended Jan. 3) results Feb. 24.

Related Stories :

Redbox Agrees to 28-Day Window for Warner Titles
Analysts: Warner/Redbox Deal Creates 'Digital Window'


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