What is Redbox?
For those of you who don’t know, Redbox is a Coinstar owned company that rents DVDs out of an automated kiosk system. It is projected that there will be over 22,000 of these machines by December of 2009. Most of these kiosks are found at super-markets close to the check-out aisles. You could say that they’re sort of a point of purchase “impulse” rent type of system. Redbox kiosks only take credit cards and you get to rent from any one of a number of new releases for just $1.00 per day. The only drawback is that you do have to return the movie within 24 hours, or you get an immediate late fee that gets automatically deducted from your credit card. Even so, as someone who has used the product, I think that the Redbox system is great. It’s cheap and very efficient. Get your groceries… find the movie you want… put in your credit card… out comes the movie and you’re outta there.
One inherent drawback to the Redbox business model is that it competes with the many “brick and mortar” video stores that carry huge movie selections and offer quality customer service… along with supplying jobs for school-bound kids. A major criticism of the kiosk system is that it is believed to be vastly underselling (and therefore undervaluing) the product.
What’s the issue between Redbox and Hollywood?
Well, it appears that a war has begun between Hollywood and the Redbox system and I felt compelled to write about it.
About two months ago, Redbox filed separate lawsuits against both Fox and Universal Studios. The lawsuit against Fox in Delaware is aiming to lift the distribution ban that has been set in place against movie rental vending machines in that state.
Similarly, Universal Studios was accused of trying to coerce the company into signing an agreement — and threatening to try to stop others from supplying Redbox movies if the company didn’t agree to the terms of the agreement.
Specifically, Universal wanted Redbox to agree to:
wait 45 days after a DVD’s release date before renting it;
pay a royalty of 40% of gross rental revenues;
promise that prices never dip below $0.99 per night; and
destroy all previously rented DVDs rather than offering them for purchase for $7, as Redbox currently does.
It appears that Fox and Universal are trying to circumvent the first sale doctrine by controlling how a copyrighted product can be resold. Universal threatened that if Redbox did not agree to these business-clauses, it would stop supplying movies to any distributor who supplies Redbox. Effectively, that would mean that those distributors would stop supplying Redbox, rather than lose Universal as a supplier.
What’s the view from Hollywood?
“Having our movies rented at $1 is grossly undervaluing our products,” Chase Carey, president of Fox’s parent company, News Corp. (NWS), told analysts during a recent conference call. Some worry that $1 rentals could speed the fall in DVD sales, which Adams Media Research predicts will tumble 9% this year. At the same time, vending machine rentals will accelerate as Redbox and others roll out more kiosks.
The Case of Nintendo Corporation vs. Blockbuster
Back in the late 80’s, I remember reading about an anti-trust lawsuit that Nintendo Corporation brought against Blockbuster. Keep in mind, this was back in the 8-bit video game days (even before the Sega Genesis and Super Nintendo came out). In this lawsuit, Nintendo claimed a breach of contract because Blockbuster was photo-copying the game manuals and putting them in the plastic containers along with the cartridges that were being rented out.
Sound ridiculous and petty? Yeah, well… that’s the way it was. I’m not sure what became of it, but I would guess that Blockbuster settled out of court. Furthermore, they must have agreed not to photocopy the important directions describing what the A, B, start and select buttons are for. Thus, all was well again in the world of “intellectual” property rights.
I brought that story up, because it draws similar parallels to this current one (only about twenty years later). On one side, you have a company (Redbox) that is trying to make a profit by selling point-of-purchase type service to customers via a kiosk system. On the other side, you have Megalopulous Studios trying to clamp down on them, because it’s infringing on their bottom line.
Conclusion
At the expense of sounding like a left-leaning Michael Moore anti-capitalism clone (of which I am definitely not), I have to say that I don’t have very much sympathy for any industry or corporation that is trying to unfairly strong-arm the competition at this point. Hollywood’s rant almost sounds similar to Metallica’s complaint against MP3 downloads and how it was going to cut into their profits. Boo hoo. Now, anyone can buy a single song for 99 cents on iTunes, instead of paying $12 for a bad CD with only one or two good songs on it. Isn’t that terrible? My sympathies if Metallica only makes $2-5 million per year (instead of $10 million) as a result of this.
On that financial note, Universal Studios and the Hollywood machine in general have very little room to make an argument against Redbox. If such over-edited, regenerated dreck as G.I. Joe: The Rise of Cobra or Transformers: Revenge of the Fallen really are worth the $19.99+ price tag that they will likely be given in a few months on DVD, then people will pay that price. If not, then folks will simply rent them at Red Box for $1.00… maybe.
Market-forces will dictate the value of these movies… not Hollywood. Just because a studio spent over a million dollars on that really cool five-second Eiffel Tower explosion scene and then spent ten bucks on the overall script… that doesn’t mean that folks should have to pay top-dollar to see it.
One more thing; regarding the issue of Redbox putting the mom and pop video stores out of business, I hate to sound cold here… but video stores are quickly becoming a thing of the past. Blockbuster has been putting the pinch on smaller video stores for years… and they themselves are feeling the squeeze from online services like NetFlix. Now, everyone is feeling the pressure from video kiosks like Redbox and DVD Play in an effort to “out cheap” the next guy.
Like it or not, I think that everything is going electronic. Just like what I mentioned earlier, iTunes and other online music outlets are the first places most folks go to purchase their music nowadays. Tower Records was one of the biggest record store chains out there. They got that way in part by selling records and CDs cheaper than the mom and pop stores out there. Ironically, even Tower Records saw the writing on the wall with the advent of Napster and other file-sharing media outlets online, thus prompting them to liquidate their inventory in 2006. I see the same thing happening in regard to video within the next ten years or so… which is why services like NetFlix may be the only ones left standing after this whole thing is sorted out.
We’re living in an era of new technology within a new economy. People want even more convenience and yet we don’t have the same amount of disposable income that we used to. That’s where Redbox comes in. Obviously, it’s filling a niche… or it wouldn’t be doing so well. Change is good. The music industry learned to embrace it. Now, the movie industry needs to adapt as well. Otherwise, it will get left behind, while spending countless dollars on losing court battles. – FIN
Footnotes:
http://en.wikipedia.org/wiki/Redbox
http://www.techdirt.com/articles/20081028/0242452664.shtml
http://www.businessweek.com/magazine/content/09_34/b4144000806009.htm
http://michaelsautter.newsvine.com/_news/2009/08/13/3148806-hollywood-vs-redbox
http://kara.allthingsd.com/20090831/louie-swisher-hearts-redbox-but-hollywood-not-so-much/
A war is brewing between Universal Studios, Fox and Redbox. There are multiple sides to this issue and it looks like things might get very ugly for Hollywood. Read the rest of this entry »
Posted by ryanjournal 
It’s time take a break from the heavy stuff. I had been thinking about doing a Top 10 list for quite some time now and this is as good a time as any. Even though I rarely watch TV anymore, I figure it’s time to make a list of my favorite shows… most of them from the ‘80s. You are entitled to disagree with me. I certainly don’t have problems with those who disagree, even if they’re wrong:)
Posted by ryanjournal 
Warning:
Posted by ryanjournal 
Okay, looks like RJ is back for the foreseeable future. My apologies to anyone who has been waiting for something to happen here. I’ve decided that I’m either going to hit this thing 150% or not at all. I’ve enjoyed blogging in the past, but ultimately (between quitting my old job, moving out, selling my place, moving in, searching for a new job, finding a new job, settling into my new job and ultimately getting married) I found that I didn’t have time for it. Now if I’m going to do this again, then it’s going to have to be all or nothing. I feel as though I’m ready to give this another shot, so we’ll see what happens. Some of the subject matter will be pretty hard core, but I think it’s time to address what no one else wants to talk about. Well, I’ll close for now. I should have something posted fairly soon. Until then, take care and God bless.
