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Redbox: No Revised Warner Deal in Place

11 Jan, 2012 By: Erik Gruenwedel



Warner Home Video’s intent to double the current 28-day delay of new release titles into rental channels apparently isn’t going to affect Redbox, a spokesperson for the kiosk vendor told Home Media Magazine.

Warner Bros. Home Entertainment Group Jan. 10 formally declared it was implementing a 56-day embargo on new release titles — an announcement made jointly with Netflix, which agreed to the extended retail window.

A studio source familiar with the deal said the initial embargo extension affected just Netflix and that discussions with other rental vendors were ongoing.

No. 1 kiosk vendor Redbox’s license agreement with Warner, which calls for a 28-day embargo, expires at the end of the month. Redbox spokesperson Kate Brennan said in an email the current agreement parent Coinstar has with Warner is to receive movie titles 28-days after their release. 

“No revised agreements are in place,” Brennan wrote from a Coinstar statement.

Indeed, Warner’s 56-day extension to Netflix is little more than a Pyrrhic victory for the studio considering that 70% of Netflix’s disc renting subscribers prefer catalog — not new release — titles.

Eric Wold, analyst with B.Riley & Co. in Los Angeles, said Netflix was wise to take the extension in exchange for lower-priced disc rentals. More importantly, Wold said he expects Redbox to reject similar contract overtures from Warner.

He said Redbox, which operates more than 40,000 kiosks in 27,000 locations, is heavily invested in offering new releases on street date — a reality it could not afford to risk going forward. Wold expects Redbox — if confronted with a 56-day embargo — to push through a workaround program obtaining Warner titles through alternative sources, including big box retail.

The analyst said Redbox has spent the past two years perfecting just such a strategy and is better prepared to implement it than it was two years ago when confronted by studio embargoes for the first time.

“We continue to expect Coinstar to reject such a change for Redbox and, instead, implement a long-term replacement workaround strategy,” Wold wrote in a Jan. 11 note. “In our opinion, this remains the smarter move for the company.”

Russ Crupnick, senior industry analyst with The NPD Group, wonders whether the studios' attempts to manufacture scarcity of new product through windowing matters anymore to consumers in today's movie retail environment.

Crupnick said NPD research indicates that more than 90% of renters would not consider acquiring a title through alternative channels, i.e. sellthrough.

"The challenge is that the extended window will likely help only a select number of titles, and extending the window may actually hurt some fringe releases," Crupnick wrote in a blog. "Consumers will simply rent them later on, or maybe not at all."

At the same time if the extended embargoes increase sellthrough at higher margins just 3%, it's an incremental win for studios, the analyst said.

Crupnick said the effect spearheaded by Warner to establish "appointment" viewing of movies is diminishing with the rise in VOD options and DVR use in the home. A historic value of home entertainment has been the direct impact on studios' fiscal bottom line, which results in the production of more compelling movies. Yet, Crupnick wonders when a "Triple-A" title isn't available for rent on street date will consumers simply switch to time-shifted TV content or streamed episodes of "Breaking Bad" on Netflix, among other options.

"The question is whether this longer window between release and rental availability will have the desired result," he wrote.



About the Author: Erik Gruenwedel


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