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Redbox, the company that rents DVDs through kiosks for $1 a day, has had a polarizing effect on the movie industry. Lines are being drawn and sides taken as a battle erupts over the perceived value of movie content.
The latest salvo in this brawl happened yesterday when Redbox filed suit against 20th Century Fox (s NWSA) in response to the studio’s recent attempt to prevent new release movies from reaching Redbox’s kiosks. Last week, Fox imposed a window with its wholesalers that prevented the sale of discs to Redbox during the first 30 days of a title’s release. This isn’t the first attempted studio shutout that Redbox has had to deal with. In October of last year, Redbox filed a similar suit against Universal Studios Home Entertainment (s GE) over its attempt at creating a 45-day window between a title’s release and when it was available on Redbox.
Why the ruckus? Some studios believe that the $1 rental price destroys the value of a film and hurts revenue from DVD rentals and sales. Why pay $4.50 to rent a movie when you can grab it at the grocery store for just a buck?
But not every studio is fighting Redbox. Disney (s DIS) supplies it with new release titles, and both Sony (s SNE) and Lions Gate recently signed distribution deals with the company. According to an SEC filing from Redbox, the Sony agreement was valued at $460 million over the next five years, and Lions Gate said that its deal would generate $200 million to $300 million over the next five years.
The studios’ moves both for and against Redbox illustrate just how powerful the company has become. Redbox will have 22,000 kiosks across the continental U.S. by the end of this year, and generated $389 million in revenue last year. USA Today writes:
Redbox pays about $18 for a DVD and rents it about 15 times at an average of $2 per transaction. The company sells half of the used DVDs back to wholesalers for as much as $4 per disc, and sells about 3 percent directly to consumers for about $7. It destroys most of the rest.
Redbox has grown so powerful that Netflix (s NFLX) considers the company its biggest competitor.