Redbox Files Second Suit Against a Studio

12 Aug, 2009 By: Chris Tribbey, Thomas K. Arnold

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Redbox has filed suit against 20th Century Fox Home Entertainment over the studio’s decision to impose a 30-day delay on making its new DVD releases available to the rental kiosk company.

Fox thus becomes the second studio targeted by Redbox in a lawsuit. Universal Studios Home Entertainment last year was sued after withholding its new DVD releases from Redbox for 45 days.

“Fox’s unlawful actions harm consumers by decreasing the available supply of copyrighted new-release DVDs, reducing consumer choice in the marketplace and increasing the prices that consumers must pay,” the suit reads. “Fox seeks to unlawfully eliminate the popular and growing kiosk distribution channel.”

Redbox is accusing the studio of misusing copyrights, violating antitrust laws and “tortiously” interfering with Redbox’s existing agreements with its distributors. Redbox is seeking both declaratory and injunctive relief and unspecified damages.

In the suit Redbox compares Fox’s move to Hollywood’s past fights against new technology, including the TV and the VCR.

“Now, despite the fact that consumers are being battered by one of the toughest recessions in history, Fox again wants to restrict supply and impose higher prices,” the suit reads.

Redbox president Mitch Lowe, in a statement, intimated that while the suit works its way through the courts, the kiosk company would simply buy Fox DVDs at retail and rent them as soon as they come out, just as the company currently does with Universal Studios releases.

“Redbox’s cornerstone principles include providing customers with a convenient way to rent new release DVDs at an affordable price,” Lowe said.  “At the expense of consumers, 20th Century Fox is attempting to prohibit timely consumer access to its new release DVDs at Redbox retail locations nationwide.”

He added, “Despite this attempt, Redbox will continue to provide our consumers access to all major new releases, including 20th Century Fox titles, at our more than 15,000 Redbox DVD rental locations.”

 

Fox last week announced the new policy with the statement, “We invest enormous money, creativity and effort into make entertaining, high-quality Fox movies available throughout the world,” implying that buck-a-night kiosk rentals devalues the studio’s intellectual property.

Fox fired back against the suit in its latest statement, calling Redbox’s claims “meritless.”

“Fox spent several weeks trying to negotiate a deal with Redbox that offered Redbox varying terms that gave Redbox the option of purchasing DVDs either on the initial DVD release date or with a 30 day window,” the studio said in a statement. “Unfortunately, Fox and Redbox could not reach an agreement. Redbox has now filed a lawsuit challenging Fox’s ability to make business decisions that Fox believes are in its best interest as well those of consumers.

“This lawsuit aims to limit Fox’s ability to make legitimate business decisions, and Fox believes it will prevail in defeating Redbox’s meritless claims.”

Studios have become increasingly alarmed over Redbox kiosks in recent months, as DVD sales continue to trend downward while the rental business, powered in large part by kiosks, surges. Midyear numbers provided by Rentrak indicate consumer spending on video rentals rose 8.3% in the first six months of this year, compared to the same period in 2008.

Studio executives fear the proliferation of Redbox kiosks is cannibalizing DVD sales, particularly since those kiosks are now being rolled out nationwide in the lobbies of Wal-Mart stores. Wal-Mart has traditionally been the country’s No. 1 retail seller of DVDs.

Studios are split into two camps: those that are fighting Redbox, which they compare to a dollar movie house that shouldn’t get first-run movies, and those that are cutting deals with the kiosk company to minimize any potential damage to their bottom lines.

Fox and Universal belong in the former category, while Sony Pictures and Lionsgate each have cut deals with Redbox to provide new releases to the kiosk company for immediate rental, with the stipulation that those DVDs are not to be resold later on the used-disc market once rental demand dies down. Studio executives have long cited the sale of previously viewed rental DVDs as another culprit in sagging DVD sales.

Fox and Universal have both sought to block Redbox’s access to new-release DVDs by forcing distributors Ingram Entertainment and Video Product Distributors (VPD) to stop selling the studios’ titles to Redbox.

“Not withstanding [Redbox’s agreements], VPD and Ingram will, by necessity, bow to Fox’s coercion and stop filling Redbox’s orders for Fox DVDs with release dates beginning October 27, 2009,” the suit reads. “Because Fox has ordered all its distributors to stop selling to Redbox, Redbox lacks viable wholesale channels from which to purchase new-release Fox DVDs.”

Ice Age: Dawn of the Dinosaurs is the first title Redbox is anticipating that it will have to purchase at retail in order to stock its kiosks with DVDs on street date.

Redbox argues in the suit that “Fox has no legally valid right to restrict or govern how or to whom VPD and Ingram resell Fox DVDs that they have purchased. But because of Fox’s monopoly power derived from its government-granted copyrights, and its position within the industry, Fox has the power to unlawfully coerce VPD and Ingram to no sell new-release Fox DVDs to Redbox.”

 

 

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