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Warner to Double Rental Embargo to 56 Days?

6 Jan, 2012 By: Erik Gruenwedel

Warner Home Video’s much-anticipated expansion of the 28-day delay on new-release titles into the rental chain reportedly may be announced at the Consumer Electronics Show in Las Vegas.

The studio, which created the first 28-day embargo on new releases to Redbox kiosks and Netflix in 2010, will double the embargo to 56 days and apply it to all rental channels, including Blockbuster stores, according to website AllThingsDigital.com, which cited sources familiar with the planned action. However, a spokesperson from Redbox said the 28-day delay is still in place and no revised agreements currently are in place.

Announcing the embargo extension at CES would conveniently coincide with Hollywood’s aggressive promotion of digital locker UltraViolet by Warner and industry trade group DEG: The Digital Entertainment Group.

Cloud-based UltraViolet is considered the studios’ last stand for physical and electronic sellthrough. Time Warner CFO John Martin, speaking at an investor event Jan. 5, said the studio had taken the leadership position on UltraViolet — a strategy he said was imperative to saving sellthrough. The CFO also revealed that initial fourth quarter sales data of physical media was disappointing — further underscoring the argument to bolster sellthrough at the expense of rental.

If Warner extends the rental window to 56 days, Ralph Schackart, analyst with William Blair & Co. in Chicago, believes other studios that have 28-day windows (Fox and Universal) may look to extend their windows as well. The Universal agreement is up for renewal in April 2012, and Fox has the right to terminate the agreement as early as April 2013. Disney does not have a 28-day delay window.

Schackart said a 56-day embargo would have limited impact on Netflix, which has sought to distance itself from disc rentals. The same could not hold true for Coinstar-owned Redbox, the analyst said.

“Although Coinstar was able to work through the 28‐day window previously, we believe there is a better chance that the 56‐day window could have a more material impact since the content will be roughly two months old when it hits a kiosk and a growing number of digital channels will have the digital content to view (i.e., digital channels will have the titles for rent or purchase during a 56‐day DVD embargo),” Schackart wrote in a Jan. 6 note.

A Redbox spokesperson said the current agreement with Warner mandates receiving movie titles 28-days after their release. No revised agreements are in place.

Home Media Magazine Sept. 23 first reported Warner’s plans to extend the embargo, citing distribution and studio sources who were not authorized to comment publicly on the matter. The move would dovetail with Time Warner-owned pay-TV channel HBO’s confirmation Jan. 5 that it would no longer sell new-release physical media to Netflix at wholesale on street date.

“Some of the Warner reps have called our key customers to let them know about this upcoming change,” a distributor told HM in September. “They have all been consistent with their message.”

BTIG Research analyst Richard Greenfield routinely has blogged since then that studios should expand the embargo (by as much as 90 days) on all new releases into the rental channel, with early availability only via higher margin electronic sellthrough.

A Warner representative was not immediately available for comment.

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