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Redbox sues studio over DVD access

August 13, 2009|Dawn C. Chmielewski and Ben Fritz

Redbox continued its battle with Hollywood studios, suing 20th Century Fox over its attempts to keep the vending machine operator from offering newly released DVDs for $1 a night.

The lawsuit, filed Tuesday in federal court in Delaware, accuses Fox of using its power to "unlawfully coerce" distributors of its DVDs to withhold the release of new titles for 30 days from the initial release date. The suit alleges that such actions constitute an abuse of Fox's copyright and "naked restraint of trade."

"At the expense of consumers, 20th Century Fox is attempting to prohibit timely consumer access to its new release DVDs at Redbox retail locations nationwide," Redbox President Mitch Lowe said.

The studio said its home entertainment group had spent several weeks trying unsuccessfully to negotiate a deal with Redbox that gave the vending machine operator the option of buying DVDs either on their initial release date or 30 days later.

"Redbox has now filed a lawsuit challenging Fox's ability to make business decisions that Fox believes are in its best interest as well those of consumers," studio spokesman Chris Petrikin said. Redbox, a spinoff of fast-food giant McDonald's Corp. that's now owned by Coinstar Inc., is reshaping home entertainment, the most lucrative market for the movie industry, with 17,000 kiosks in grocery and convenience stores that rent movies at a remainder-bin price. DVD sales this year are down 13.5%, but rental revenue is up more than 8%, thanks in part to Redbox.

Sony Pictures and Lions Gate Entertainment Corp. have concluded that it's a key factor in the future of the business and signed five-year guaranteed distribution deals worth hundreds of millions of dollars each for the studios. Others see it as a threat that undercuts the value of DVDs, which have played a big role in keeping movies profitable.

Universal Pictures late last year ordered its distributors not to sell Redbox any DVDs until 45 days after they went on sale in stores and is now in the midst of a legal battle with the company. Fox last week ordered its distributors to wait 30 days before making discs available to the vendor. The edict goes into effect Oct. 27, just before "Ice Age: Dawn of the Dinosaurs" is released to home video. Warner Bros. has yet to make a decision, but Jeff Bewkes, chief executive of corporate parent Time Warner Inc., said Redbox should be subject to a waiting period before getting access to the company's discs.

Lowe said Redbox doesn't represent a threat to Hollywood's lucrative rental business, but rather a source of additional income.

"We're attracting back to rental and purchasing a group of customers who were priced out of the business. They weren't buying films, and they weren't renting," Lowe said. "That is a new revenue stream." Internal Redbox studies show that the rental kiosks have less than a 1% negative effect on sales of DVDs in stores where shoppers can either rent or buy, Lowe said.

One analyst, however, is not convinced. Pali Capital analyst Richard Greenfield wrote that Redbox's pricing poses a "substantial risk" to the movie industry.

"It sets an ultra-low price point for movie content that will impact consumers' decision-making process about all forms of movie-related commerce -- theater-going, DVD purchase, video on demand," Greenfield wrote.

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dawn.chmielewski@latimes.com

ben.fritz@latimes.com

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