Sony in Deal with Redbox

21 Jul, 2009 By: Stephanie Prange, Chris Tribbey

Sony Pictures Home Entertainment and Redbox have announced a multiyear distribution agreement that will make SPHE new-release, direct-to-video and catalog titles available to consumers through more than 17,000 Redbox kiosks nationwide

Under the deal, according to a Securities and Exchange Commission filing by Redbox parent Coinstar, Redbox will pay Sony approximately $460 million during the agreement, which runs from July 1 to Sept. 30, 2014. Sony has an option to terminate the agreement Sept. 30, 2011.

The agreement requires Redbox to license minimum quantities of SPHE titles, which are expected to now represent nearly 20% of all DVDs carried by Redbox for 2009. The deal has Redbox buying SPHE DVDs directly from the studio, instead of other suppliers, and calls for Redbox to either destroy or return SPHE DVDs 26 weeks after street date, instead of selling them once their rental life is up.

“One negative in the vending machine channel is these DVDs end up with lower price points three to four weeks after street date,” said SPHE president David Bishop. “[Redbox] is obviously the biggest customer in the channel. That’s a big reason we’re attracted to this deal.”

Redbox president Mitch Lowe said he hopes the SPHE agreement won’t be the last with a major studio.

“Redbox is constantly working to build and maintain mutually beneficial relationships with a number of studios,” he said. “Our multi-year agreement with Sony Pictures Home Entertainment increases consumers' access to their favorite Sony Pictures titles and reflects Redbox’s long-standing relationship with one of Hollywood's premier studios.”

Redbox offers new-release DVD rentals for $1 per night and is involved in a lawsuit with Universal over distribution.

Recent Rentrak data provided by the Digital Entertainment Group showed rental revenue grew 8% in the first-half while sellthrough revenue fell, indicating consumers are starting to rent more, rather than buy discs, in a difficult economy.

“Even before the recession we were getting 65% to 75% of transactions from rental channels,” Bishop said. “Just like in every category, we’re seeing consumers start to trade down. We can either ignore that trend, or choose to find ways to maximize our profitability. We chose the latter.”

The Wall Street Journal reported July 20 that Disney and Lionsgate had cut similar deals with Redbox, however neither studio could confirm that any such deals were in place. Redbox said it was only discussing the SPHE agreement for now.