Analyst: ‘War’ Between Studios, Redbox Could Alter Future of Movie Industry

12 Aug, 2009 By: Erik Gruenwedel

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Following Redbox’s filing of an antitrust lawsuit against 20th Century Fox Home Entertainment, Pali Capital analyst Richard Greenfield said the gloves are off in a battle the outcome of which could alter the future of the movie industry.

Fox last week ordered wholesale distributors VPD and Ingram, among others, to sell its new DVDs to Redbox 30 days after their street date.

While the suit carries the identical allegations (copyright misuse, antitrust and tortious interference) found in Redbox’s ongoing litigation against Universal Studios Home Entertainment, Greenfield said Redbox’s expansion of the copyright misuse allegation against Fox underscored claims that the studio’s action “constitutes a naked restraint of trade.”

“A war is clearly brewing,” Greenfield wrote in a note. “We believe Redbox’s current business model poses a substantial risk to the future of the movie industry, as it sets an ultra-low price point for movie content that will impact consumers’ decision-making process about all forms of movie-related commerce (theater-going, DVD purchase, video-on-demand, electronic/online rental and sellthrough).”

The analyst said he believes the litigation will expedite resolution of the Universal case.

Greenfield said that should Redbox lose in court, it could still survive at margins below current 16% EBITDA when stocking kiosks with DVDs bought at retail.

He said a pivotal player in Redbox’s survival is Wal-Mart, in which many of Redbox’s kiosks sit. Greenfield said Wal-Mart banks on the secondary incremental revenue generated by Redbox renters returning discs.

“We suspect the return trip effect will fade as Redbox moves toward 30,000 kiosks with units positioned outside convenience stores,” Greenfield wrote.
 

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