Aisha Smith chooses a DVD at a Redbox rental kiosk in a north Seattle grocery… (Elaine Thompson / Associated…)
In a big win for the studio and a major step in the ongoing transformation of the home entertainment market, Redbox has agreed not to offer Warner Bros. movies through its $1-per-night kiosks until 28 days after they go on sale.
The deal marks an end to a six-month legal battle after Warner tried to impose such terms on the discount movie rental company last August. Tuesday's concession opens up the possibility that Redbox will strike similar agreements with Universal Pictures and 20th Century Fox, which it also is challenging in court.
The new Warner-Redbox pact runs until 2012. The video rental company said in a Securities and Exchange Commission filing Tuesday that it expected to pay the studio $124 million during that period.
It comes a month after an identical delay on new releases with Netflix. The subscription rental company and Redbox have been growing rapidly, while DVD sales and retail rentals have slumped, prompting concerns by many in Hollywood that they are major culprits in a slump in home entertainment revenue.
"We want to move consumers to activities such as retail rental, video on demand and buying that have the best economics for the studio," said Kevin Tsujihara, president of Warner Bros. Home Entertainment. "Those who want to pay $1 and are willing to wait, God bless them."
Warner, Fox and Universal have long maintained that $1-per-night kiosk rentals should play the same role for DVDs that discount theaters, which show movies several months after they debut in first-run cineplexes, do for films: to serve as an alternative for filmgoers who don't mind waiting to pay less.
Redbox has consistently argued that discount rentals have no effect on sales and that the studios should provide DVDs to all vendors on an equal basis.
During its court battles with Fox, Universal and Warner, Redbox has tried to skirt the studios by buying DVDs from major retailers. However, it has often been unable to obtain an adequate supply.
"We were not serving our customers by getting them enough copies of the titles they wanted," acknowledged Redbox President Mitch Lowe. "This seemed to be the best way to give our customers more copies and get a deal that made economic sense."
In return for the delay, Warner is giving Redbox a significant discount on its discs and guaranteed supply levels.
It's possible that other studios that currently supply DVDs to Redbox simultaneously with their sale dates will soon negotiate for delays in rental dates as well. Paramount Pictures can do so in July, while Sony Pictures and Lions Gate Entertainment must wait until 2011 under their current contracts.
If more studios follow Warner's lead and retail rental chains such as Blockbuster Inc. continue to shrink, consumers may soon face a situation in which they must either buy or download from the Internet.