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Summary:

The last year has been pretty good to Redbox. The rental kiosk chain is about to embark on a new streaming venture with Verizon, and has bee…

Redbox kiosk
photo: Eddie Does Japan

The last year has been pretty good to Redbox. The rental kiosk chain is about to embark on a new streaming venture with Verizon, and has been riding a stock-price rise. What’s more, it says it has created a nifty workaround to a dispute over release windows with one its most important content suppliers, Warner Bros. (NYSE: TWX)

But at least one analyst thinks Redbox may be in for a rougher 2012.

Shares of Redbox’s parent company, Coinstar, which had risen 51 percent since Jan. 9 to a 15-month high of $62.10 Tuesday, dove nearly 4 percent Wednesday after Wedbush Securities analyst Michael Pachter expressed a number of concerns about Redbox. He also dropped the company from his “Best Ideas” list.

Pachter told investors that Wedbush still doesn’t have enough information about how much revenue the new streaming venture with Verizon will bring Redbox in the near term. “We’re still reluctant to model any kind of contribution,” he wrote. Redbox announced on Feb. 6 that it will contribute the physical DVD and Blu-ray rental infrastructure to a new movie-rental service being jointly developed with Verizon to compete head-on with Netflix.

He also questioned Redbox’s decision earlier this month to draw a line in the sand by not agreeing to new windowing terms with Warner Bros. Those terms stipulate that Redbox wait 56 days after DVD and Blu-ray release dates to begin renting Warner titles at its kiosks. Redbox could face similar disputes with two other studios when they renegotiate over the next year, and Pachter said that embarking on this new venture in light of that might not be such a good idea.

The hardline move by Redbox– which cut Redbox off from Warner’s video rental fare — was in sharp contrast to an earlier capitulation by Redbox rival Netflix (NSDQ: NFLX), which agreed in January to let Warner essentially double its rental window on its service from 28 days. Speaking at an investor conference in San Francisco Tuesday, Coinstar CEO Paul Davis said the company was “very pleased” with the results of a work-around to its little Warner Bros. problem, which essentially involves Redbox staffers buying Warner titles like A Very Harold & Kumar Christmas at mainstream retail outlets like Wal-Mart (NYSE: WMT). It’s costing Redbox more to pay top dollar at retail for Warner discs, Davis conceded, but the chain is making up for a lot of that expenditure by being able to rent Warner DVDs without a window.

While many in the home entertainment industry see Redbox as making a bold stand that Netflix would not, Pachter told investors that Redbox’s “work-around” isn’t a viable strategy for the longterm — not with an agreement with Universal calling for a 28-day window set to expire in April, and a similar deal with Fox (NSDQ: NWS) due to time out next year.

“We expect Universal and Fox to potentially follow suit, making a work-around far more difficult to manage,” Pachter wrote Wednesday, noting that earlier windows disputes with Warner, Fox and Universal also sent Redbox stock tumbling back in 2009.

“While we don’t necessarily expect a repeat of the last workaround, especially given that the current one is working from day 28 to day 56, we are concerned that the outcome could be messy,” he added.

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  1. Doug Hoover Monday, March 5, 2012

    Not many news stories make my jaw drop and say “what the?” but this one did. 
    How can Redbox’s work-around be to go buy movies at retail and rent them? 
    Please correct me if I am wrong but isn’t that illegal? I cannot go buy a copyrighted movie, whether it be in video, DVD or Blue Ray format and then start showing it or renting it for profit. 
    Since when is this okay?

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