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Paramount delays decision on 5-year deal with Redbox

The studio extends until June 30 a trial agreement with the $1-a-night DVD rental firm that allows it to evaluate data on whether low-priced rentals of new movies are hurting sales.

December 15, 2009|By Ben Fritz

Paramount Pictures has put off a decision on whether to enter into a five-year deal that has riled half the Hollywood studios.

The Viacom Inc.-owned studio has extended through June its trial agreement with $1-a-night DVD kiosk company Redbox that was set to expire Dec. 31. Under the deal struck in August, Paramount committed to provide new movies to Redbox in exchange for data that would help it decide whether low-priced rentals were hurting sales.

Paramount's ultimate decision is being closely watched, because it could indicate where most of the Hollywood studios stand on supporting the video rental company, whose growth has mushroomed despite a big drop in DVD sales.

By the end of the year, Paramount was supposed to decide whether to trigger a five-year pact to supply movies to Redbox that was expected to generate $575 million for the studio. That deadline has now been extended to June 30.

20th Century Fox, Universal Pictures and Warner Bros. are in court trying to prevent Redbox from offering new releases for about a month after they are first released on DVD. The studios contend that low-cost Redbox rentals undermine their DVD business by drawing consumers from higher-priced, more profitable rentals and purchases.

Redbox counters that it is generating new revenue for the studios and that its effect on sales is minimal.

Sony Pictures, Lions Gate and Summit Entertainment have all signed long-term deals guaranteeing availability of their movies to Redbox. Walt Disney Studios provides its movies without a formal arrangement.

Paramount has three DVDs scheduled to come out by June: "Paranormal Activity," "Up in the Air" and "The Lovely Bones." Waiting will give the studio time to assess the effect of Redbox on dramas and a low-budget horror flick, as well as its longer-term effect on recently released summer tent poles such as "Transformers: Revenge of the Fallen" and "Star Trek," which are among the bestselling movies on DVD this year.

"We'll benefit from being able to thoroughly evaluate the [long-term sales] on currently released titles, as well as continuing to examine the performance of other types of titles during the extended test period," said Dennis Maguire, president of Paramount Worldwide Home Entertainment.

The delay will also provide Paramount with one additional benefit: If Fox, Universal and Warner resolve their litigation with Redbox in the next six months, its decision about whether to sign a long-term deal will become much simpler.

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