Tuesday, 25 November 2008
You may have read what Universal Studios decided to do on its summer vacation: take on redbox, the successful DVD rental kiosk operator. On a late August day, reps from Universal decided to show up on redbox's doorstep and demand that company execs sign an agreement — that was a lose/lose situation for redbox — by the next day.
Why exactly Universal decided to confront redbox in this way is not clear, but what is clear is redbox would no longer be competitive with Blockbuster and other video rental outlets on renting Universal's videos if it has to wait 45 days after the release date to rent those not-so-new releases to the public.
Did Blockbuster complain to Universal? That was my first reaction, but I guess that wouldn't make sense if Blockbuster is also getting into kiosks.
I'm sure Universal's distributors — VPD and Ingram — were not too thrilled with Universal's actions since redbox is a big customer, but what can they do? Universal is certainly the Goliath in this drama.
But redbox has put a rock in its sling and aimed it right back at Universal by filing a lawsuit claiming infringements on redbox's rights to DVDs it's purchased, violating antitrust laws and interfering with its relationship with its suppliers.
Did Universal want a bigger cut of the profits? According to the lawsuit, Universal wants 40 percent of redbox's rental revenues on Universal's videos.
The lawsuit also reveals some interesting statistics:
redbox had 125 kiosks in 2004, had nearly 6500 by the end of 2007 and expects to exceed 12,000 kiosks by the end of 2008.
To date, consumers have rented more than 200 million DVDs from redbox.
Consumers average approximately 50 DVD rentals per day per kiosk.
Consumer demand has supported redbox' s expansion such that redbox has installed a new kiosk, on average, every 90 minutes somewhere in the United States this year to date. As part of this expansion, redbox has hired over 600 new employees this year.
While Universal is the first studio to try this tactic, I'm sure the other studios are watching with interest. Should Universal win, they'll probably follow suit and that could seriously undermine redbox, DVDPlay and other DVD kiosk operators' ability to compete with the likes of Blockbuster, Netflix and Apple iTunes.
Personally, I'm a big fan of DVD rental kiosks. Ever since I rented my first videos from redbox in November 2006, I've been a loyal customer. The price/value relationship is too good to beat; I'm also a fan of self-service kiosks in general and I'm still mad about those late fees video stores charged me over the years. (Full disclosure: redbox chief executive Gregg Kaplan joined the Association's Advisory Board in April 2007.)
DVDPlay says that Universal asked them to sign a similar agreement and they've refused, so a least there's some solidarity among some of the DVD kiosk players, though Polar Frog Digital's chief executive Todd Rosenbaum takes a different point of view, which I don't really buy. He complains that redbox doesn't pay licensing fees and then admits his firm (which makes DVD burn-on-demand kiosks) doesn't either. He also claims redbox buys "closeouts of products," which may be true for some of their DVDs, but the majority of their products seem to be new releases.
Let's hope David (redbox) prevails against this Goliath (Universal) for the sake of our industry and for the sake of the consumer.
Read also: Redbox says it won't bow to Universal.
Read also: Bullish on DVD rental kiosks.
