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Summary:

DVD kiosk retailer Redbox, which filed for an IPO in June (and likely won’t do it anytime soon with the market conditions) is in a scuffle w…

DVD kiosk retailer Redbox, which filed for an IPO in June (and likely won’t do it anytime soon with the market conditions) is in a scuffle with Universal Studios, where the NBCU-owned company has threatened to cut off Redbox’s supplies of movies from its stable, reports WSJ. Redbox has been able to get content from other channels, though (but didn’t disclose how, something that would be an issue for sure if the lawsuit pans out), and did file a lawsuit in U.S. District Court in Delaware in October, alleging the studio was violating antitrust laws and misusing copyright. Universal asked the court to dismiss the lawsuit last Friday.

At the heart of the issue is that Universal dislikes Redbox pricing, saying they are too low (sometime as low as 99 cents for a day) and are hurting other DVD retailers. It also doesn’t give a cut of the rental price back to the studios. And it stocks a limited selection of movies, the one it wants, instead of taking diktats from the studios. Reasons enough, you would think. Redbox is one of the biggest kiosk operators, and has been increasingly popping up in supermarkets around where I live here in LA.

Universal also wants Redbox to not stock more than eight copies of a movie per kiosk, compared with the four dozen or so it does not, for popular releases. Also, it wants Redbox to stock its DVDs no earlier than 45 days after they hit traditional retailers like Blockbuster (NYSE: BBI), though that would hurt Redbox rentals as most of them occur in the immediate weeks after the DVD release.

Blockbuster, meanwhile, is also testing these vending machines, and will likely be renting them out higher than 99 cents (despite its recent efforts on lower price), and give a bigger cut to studios.

Download court documents (via PDF):
The Redbox lawsuit
Evidence of Universal’s demands
Motion to dismiss from Universal, and its reasoning on defending its distribution right

Photo Credit: Adam Melancon

  1. This goes back to various copyright lawsuits. For example, back in the '80s used record stores tried renting out LPs and CDs by the day, and I believe a lawsuit found that the practice was legal as long as the disks were legally purchased. I'm sure that's what RedBox is trying to operate under.

    However, Blockbuster started this "tradition" of kicking back some of the rental price of DVDs to the studios. The studios were happy until they found out that Blockbuster was making more money from late fees than they were from rentals.

    The reason Blockbuster started doing this was that, while the studios couldn't sue 10,000 mom and pop video stores, they could gang up and sue Blockbuster.

    Now the studios expect their cut and I think Redbox does have a legal leg to stand on. I just hope they can afford the legal bills.

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  2. My wife and I love the Red Box. We rent movies from there all the time.

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  3. I know nothing about business, but so many things here make no sense..

    Why must they pay the studio part of the rental fee? Don't they buy their discs at a higher price to begin with? Why only 8 copies of a movie? Let's produce a product, but to hell with the consumer if they want to, ya know, actually see the product in a timely manner. Wait 45 days? So, in other words they want Redbox to become a useless business that cannot run a wise and profitable company? I don't want to sell the hottest product, says retailer A…I want to wait until retailer B (my competitor) has sold it for a month and a half, THEN I'll offer it when no one wants it anymore!

    Are the studios becoming as stupid as the record companies? Seriously? They learned nothing with the RIAA mess?

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  4. Of course, one of the studios used to own Blockbuster. (Paramount/Viacom). They spun it off, because it wasn't making them any money. The studios also setup Movielink (which, ironically, was sold to Blockbuster).

    Seriously, the studios just need to deliver the content, take the money from the initial sale and leave it at that. Otherwise, they need to find a way to make their rental businesses work.

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  5. Any company thats drowning will claw for the floating life-ring.

    The studios are suffering from the same rapid advance of technology that has all but killed the CD music industry.

    Its only desperation. Its natural they would try to throw a rope around Redbox and drag them down with them. Try to get a piece of the action. I think they hope Blu-Ray will help them stay afloat until they finally figure out they are dying.

    Film content is rapidly going downhill and the theater will soon follow the drive in. Why bother going out when you can buy a 60" at a warehouse'r or 110" projection TV for the cost of a set of tires.
    Reality and banal entertainment is gaining with a culture that is living more and more 'In the moment'

    Soon as the all the kids that grew up with pants falling down, Napster and Zunes start actually having to pay to see movies as adults…..
    Its all over for the Studios having they hands in the After Sales market.

    I can understand why and what they are doing but its just to late in my opinion.
    Way too late!

    You guys All make really, really valid points!
    Redbox has a limited life as well and I am sure they know it.
    With other Machine DVD vendors popping up every few months, Netflix and the like. There are a clever innovation that hit its time in the market almost perfectly!
    In a couple years (maybe less)every home with a network and DigitalHDTV will be using some sort of Download movies system. Especially as more individuals become savvy to the availability.
    If Mobil Wimax takes off like it seems….and TBs of storage get cheaper…

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