Redbox gains leverage in new studio negotiations with better disc buying workarounds - High-Def Digest Forums
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Old 12-19-2011, 03:55 AM
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Default Redbox gains leverage in new studio negotiations with better disc buying workarounds

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Analyst: Redbox Has Leverage Against Warner


19 Dec, 2011
By: Erik Gruenwedel



B. Riley & Co. analyst Eric Wold says Redbox is better prepared to implement a workaround strategy if Warner imposes extended delays of new release titles

In a twist, Redbox holds the cards in re-negotiations with Warner Home Video should the studio follow through with a speculated extension (upwards of 17 days) on the current 28-day embargo on new release DVDs and Blu-ray Discs, an analyst said.


Redbox’s disc distribution deal with Warner expires in January – an agreement to which the kiosk vendor acquiesced in early 2010, following a hastily implemented workaround strategy in late 2009 that included Universal and 20th Century Fox titles, and spooked investors and negatively impacted the bottom line.

Over the past two years, Redbox management has devised a workaround retail strategy combining wholesale and retail access to Warner titles (about 15% of the rental market) that would enable the kiosk vendor to cherry pick titles (avoiding box office duds), stock them within days – not weeks – of release and resell them in the used market instead of destroying them as mandated in the current agreement, according to B. Riley & Co. analyst Eric Wold.

In a Dec. 19 note, Wold said the improved workaround strategy could actually generate a net return (despite higher disc costs) due to increased rental revenue from earlier access to Warner’s new releases, and reduced disc volumes, among other benefits.

“We do not believe that Warner Bros. (or Universal Studios Home Entertainment and 20th Century Fox Home Entertainment) holds all the cards in the DVD agreement negotiations,” Wold wrote. “While Redbox was forced into a workaround two years ago on minimal notice, the workaround plan developed since that time has been developed as a long-term replacement to a studio agreement (with copyright law in the company’s corner).”

The First Sale Doctrine allows Redbox to not only rent – but sell – legally purchased discs from retail and wholesale sources. With many studios bowing high-profile titles in Blu-ray Disc/DVD combos, kiosk vendors can rent the discs separately. Indeed, Family Video recently sold the BD copy of Pirates of the Caribbean: On Stranger Tides for $9.99 on street date while renting the DVD.

Wold believes such a workaround strategy could make Warner rethink plans to lengthen the new release embargo, considering he believes the current embargo has had “negligible” impact on disc sales and transactional video-on-demand.

“We are not concerned if a workaround plan is implemented,” he wrote.

Separately, Wold believes Redbox is well-positioned to absorb interchange fees imposed by debit card processors (banks) Oct. 1 through its recent 20% daily rental price increase. The analyst says Redbox generates about 44 cents in incremental revenue from the average kiosk rental transaction – or about $13 annually per customer. Wold says Redbox could expect to see an estimated 8 cents in incremental (added) gross profit per rental transaction after deducting increased interchange fees, retail and studio revenue sharing agreements (where applicable).

“We believe this potential annual boost to [pre-tax] gross profit is not fully understood by investors,” Wold wrote.
http://www.homemediamagazine.com/red...t-warner-25916
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Old 12-19-2011, 06:06 AM
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This is basically the strategy that I thought Redbox should have pursued last year.

Ignore the Studio's imposed delays and just purchase the discs through third party outlets. After all, there has to be a retailer or two that would like to make tens of thousands of guaranteed sales on these releases and even if they are giving Redbox a modest discount for the bulk purchases they would still be making a decent amount of cash on every disc sold.
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Old 12-19-2011, 07:03 AM
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This is precisely one of the things that will get the studios to add a digital window between Theatrical and DVD/BD.
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Old 12-19-2011, 09:54 AM
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Originally Posted by Philnerd View Post
This is precisely one of the things that will get the studios to add a digital window between Theatrical and DVD/BD.
It will, but most people won't care. They would rather pay the $1-2 for a rental than the $4-6+..

Kudos to Redbox, I hope they follow-through with this and stick it to the studios. I will definitely give them more of my money since Netflix has been going downhill fast.
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Old 12-19-2011, 10:10 AM
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Thanks to Blu-ray failing to be able to sell by itself, the Combo packs studios now do for nearly every release will wind up hurting them in the long run. Good for you Redbox. Buy from retail, rent, and then sell. Exactly what Mom n Pop stores have been doing for years. Cut out of the middleman.

Better yet - those discs will probably have special features and skippable trailers. Unlike the ones the studios specially make.
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Old 12-19-2011, 10:15 AM
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Originally Posted by ack_bak View Post
It will, but most people won't care.
Well, I didn't say the new digital window would necessarily work

Studios will get some incremental boost I suppose from consumers that are hyped up for a film and don't want to wait another month or two. But yes, overall they can't close Pandora's Box. People are conditioned to kiosk pricing now and once someone is inside the kiosk garden the definition of "new release" changes to "new to my favorite kiosk machine". No delay windows are going to change that.

Studios are in for a rough ride as they realize they need to drastically adjust the wholesale pricing of digital content - both rental and ownership.
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Old 12-19-2011, 11:24 AM
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Originally Posted by ack_bak View Post
It will, but most people won't care. They would rather pay the $1-2 for a rental than the $4-6+..
Studios need to figure out how to raise the $1-$2 to $3-$4.

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Kudos to Redbox, I hope they follow-through with this and stick it to the studios.
One way to raise retail rental price AND move consumers toward digital purchases, is for studios to raise wholesale prices on disc bundles to retailers.

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Originally Posted by Philnerd View Post
Well, I didn't say the new digital window would necessarily work
If studios raise wholesale prices on discs, digital purchase and rental become more attractive, especially with a new digital window.
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Old 12-19-2011, 11:58 AM
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Originally Posted by GizmoDVD View Post
Thanks to Blu-ray failing to be able to sell by itself, the Combo packs studios now do for nearly every release will wind up hurting them in the long run. Good for you Redbox. Buy from retail, rent, and then sell. Exactly what Mom n Pop stores have been doing for years. Cut out of the middleman.

Better yet - those discs will probably have special features and skippable trailers. Unlike the ones the studios specially make.
I agree that without combo packs that BD would have had a much difficult time and possibly truly failed as a format. I guess with the backwards compatibility, allowing for such easy bundling of discs and their use, it ended up being both a good thing and bad thing for BD.

But when it's all said and done, BD has hit critical mass with the assistance of combo packs and the industry will transition to all combo packs to eventually just BD over time.

BD has succeeded to survive in light of the severe market conditions it had to face. That's a testament to the format more so than anything else.
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Old 12-19-2011, 12:21 PM
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Quote:
Originally Posted by mikemorel View Post
Studios need to figure out how to raise the $1-$2 to $3-$4.

One way to raise retail rental price AND move consumers toward digital purchases, is for studios to raise wholesale prices on disc bundles to retailers.

If studios raise wholesale prices on discs, digital purchase and rental become more attractive, especially with a new digital window.
It won't be easy for studios to go to Walmart, Target, Best Buy, Amazon, etc and say we are raising wholesale costs.

And it could backfire. If retailers are forced to raise prices it could force consumers to rent and stream cheaply in even larger numbers.

If anything, I would expect the price of DVD and Blu-Ray releases to drop even further if the studios favor digital for the release schedule. Walmart, etc may simply say that they expect a 20-30% drop in OD wholesale prices for new releases since they will no longer be "new".

And the studios need every OD sales they can get. Look at the numbers. Digital is not luring people to buy.
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Old 12-19-2011, 12:30 PM
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Yup....the studios are in a real fix.

With most releases catering to the fickled PS3 gaming crowd and with Redbox derailing new release sales with their $1 rentals along with pay subscription channels broadcasting catalog favorites in 1080i to millions of HD DVRs...future prospects for the filming industry and its revenue chain look rather grim AND if something isn't done in a hurry, we may see some major shutdowns.

What to do....what to do. Well, since all of us have no major aversions to bouncing ideas off the walls, I say the studios return to their former greatness by offering the public, films that appeal to a wider theatrical audience - more in a following post.

Secondly...WOW 'em and give audiences a technical movie experience that goes way beyond HDTV and/or Blu ray. I'm talking more IMAX...more 3D 48 fps and/or 4k 3D presentations and stop ***** footing around with 3D cartoon movies.
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