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blockbusterA popular topic here at Inside Redbox has been the cratering of DVD sales as rentals become more popular. It appears, however, that Blockbuster Video plans to buck that trend. In a recent financial conference, Blockbuster CFO Tom Casey said that the company plans to move away from the movie and game rentals that currently account for about 85% of items in its stores.  This ratio will be replaced by the 50/50 rental/sell-through model used in Blockbuster locations overseas. For-sale DVDs and merchandise will become a much larger percentage of in-store items as the company puts more resources into its Blockbuster Express partnership with NCR, as well as its digital delivery and by-mail channels.

Regarding Blockbuster’s expansion of its Redbox-targeting kiosk business, Casey said that the company plans to place many of the new kiosks near shuttered stores.

“Store closings are a nice opportunity to put machines nearby,” said Casey, who said that Blockbuster’s revenue from the kiosks, which are built by NCR, are strictly royalty based and on a sliding scale.

I don’t know about you, Insiders, but I have to admire a man who can use the phrases “nice opportunity” and “store closings” in the same sentence with a straight face. I suppose if I were the CFO of a floundering company with mountains of debt, I would try to find the bright side in everything, too.

In all seriousness, though, do you think these moves are going to help Blockbuster? Can anything help them at this point? Do you see yourself purchasing DVDs from Blockbuster instead of renting them there? We’d love to hear your comments.

[via Video Business]

42 Responses to “Blockbuster to Move Away from Rentals as Primary Business Model”

  1. Visitor [Join Now]
    Joey [visitor]
    I work for VBG. To find out why this is important, click here.

    Alls I know is Blockbuster got a massive influx of capital (over 600 Million) This is going to enable them to restructure and try some new stratigies. I think this could be a good move for them especially if wallmart is going to be downsizing on their Dvd sell thru.

  2. Member [Join Now]

    Does blockbuster get money from how many items they rent for free from some company… 6 months back i used to take hollywood video coupons in and get a free PSP rental game…. Well about 2months back they go .. we can no longer take those coupons…. then 3 weeks ago they started taking them away.. im probally the only one who even rents the psp games LOL

  3. Visitor [Join Now]
    Joey [visitor]
    I work for VBG. To find out why this is important, click here.

    PHYSICAL: Studio says its operating fairly with kiosk operator
    By Susanne Ault — Video Business, 10/1/2009
    OCT. 1 | PHYSICAL: 20th Century Fox Home Entertainment today filed a motion to dismiss the antitrust lawsuit brought against it by Redbox, painting the popular $1-per-night DVD rental kiosk operator in court papers as unwilling to pay the same amount paid by other retailers for the studio’s movies.

    “Redbox’s legal claims are fatally flawed,” Fox said in a statement. “Fox’s filing today makes clear that, in the end, the case is all about Redbox’s refusal to make a business deal on general terms similar to those paid by others in the industry. Unable to get the terms it wanted at the bargaining table, Redbox instead decided to file this meritless lawsuit.”

    The studio also is seeking a venue change from Delaware to Los Angeles.

    Redbox last month filed a federal antitrust suit against Fox because of studio terms that would prohibit wholesalers from selling Fox DVDs to the rental kiosk channel until at least 30 days after their initial street date. The suit charges the studio with copyright misuse, antitrust violations and tortious interference with contractual/business relationships in regard to Redbox’s relationships with wholesalers VPD and Ingram.

    In court documents filed Thursday, Fox says it is operating fair and square with Redbox and is treating the kiosk operator like any other retailer. The studio denies that it ever refused its titles to Redbox. Fox did offer the kiosk company similar pricing and distribution terms that have been accepted by other retail customers, the studio said in the filing. However, Redbox refused those terms, giving Fox the right to adjust its business relationship, the studio maintains. In fact, Fox could have chosen to stop selling DVDs completely to Redbox, but is allowing distributors to service Redbox with its titles 30 days after street.

    “Antitrust law does not require a seller to provide its product through the distribution channel that the buyer demands, on the date that the buyer demands, or at the price that the buyer demands,” stated the Fox court filing. “To the contrary, sellers have considerable freedom under the law to sell [or not sell] to whomever they want, how they want and when they want. To this end, a seller’s distribution policies do not violate [antitrust law] unless the plaintiff proves a contract, combination or conspiracy that injures competition. Redbox cannot meet any of these elements.”

    Fox has directed wholesalers to sell its titles to Redbox 30 days after their general street date, beginning with Oct. 27 release Ice Age: Dawn of the Dinosaurs. It noted in the court filing that Redbox can buy Fox movies on street date from other retailers or from the studio itself.

    Fox is one of a number of studios seeking a kiosk channel delay of as much as 45 days. Redbox also is suing Universal Studios Home Entertainment and Warner Home Video on similar grounds.

    A U.S. District Court judge for Delaware already has granted the dismissal of two of the three counts against Universal in the 10-month-old lawsuit but denied Universal’s motion to dismiss the antitrust claim altogether. The two counts dismissed relate to copyright and tortious interference, the latter term implying an attempt to disrupt another party’s business relationships.

    “We are confident in our legal position and the merits of our case as underscored by a recent decision in Delaware Federal Court,” Redbox president Mitch Lowe said in a statement. “2oth Century Fox continues its pursuit to prohibit consumer access to new release DVDs at affordable prices. Redbox remains steadfast in our commitment to protecting consumers’ rights and to providing our customers the DVDs they want, where they want and at the low price they want.”

    Lowe noted that studios including Lionsgate, Paramount Home Entertainment and Sony Pictures Home Entertainment have distribution agreements with Redbox.

    Kiosks were largely responsible for an 8.3% growth in consumer spending on movie rentals in the first half of the year, according to Rentrak. But DVD sales fell more than 15% in the same period, and some studios believe that inexpensive kiosk rentals and consumer sales of the kiosks’ used rental discs are at least partly to blame. The distribution deals Redbox has with Lionsgate, Paramount and Sony, as well as an agreement with Walt Disney Studios Home Entertainment, all limit Redbox’s sales of used rentals discs to consumers.

    • Visitor [Join Now]
      Joey [visitor]
      I work for VBG. To find out why this is important, click here.

      Warner also responded to their complaint as well

    • Visitor [Join Now]
      John Small [visitor]

      As has been pointed out again and again by the clear thinkers on this board, the studios only want Redbox to play by the same rules as everyone else.

      They are not preventing Redbox access to their product, they simply want them to pay a fair price as opposed to the “special deals” they have had in place so far.

      Redbox is fighting this because they know that they cannot compete if they have to pay a fair price for their DVDs.

      They have no choice but to raise prices or go out of business.

      The $1.00 rental price for New Releases is not a legit business model. Redbox knows this. The studios know this. Hopefully the people on this board (owner included) are beginning to know this too.

      • Member [Join Now]
        Mark [rb123456789]

        No convincing proof has ever been offered that Redbox received “special deals” that noone else received.

        Would they really choose to buy at retail when wholesale pricing is available to them? That makes no sense to me.

        The complaint Redbox has had is not that they couldn’t get special deals, it was that the studios wouldn’t let their distributors sell to them at all.

        Until someone can support stories about the special pricing Redbox supposedly received with some corroborating evidence, I will regard those stories as part of the gross exagerations and half truths that the pro-studio forces have often used on this board.

        • Visitor [Join Now]
          Joe Schmuck [visitor]

          How about VPD & Ingram repurchasing used DVD’s after the end of their rental cylce from Redbox only, and not from their thousands of other customers, & then trying to flood the market with these products. I don’t know about Ingram, but as a VPD customer, I know that they’re sitting on nearly 2 million DVD’s that they can’t dispose. They were buying these back and in the beginning we’re trying to resell them in the $5 to $7 range onlt to see their used inventory continue to grow. Now, most are being offered for sale to their accounts for $1 to $3.

          Redbox on average was only investing, after the buyback from the wholesalers, approximately $7.00 per copy.

          P.S. – I can purchase copies for my independent rental store significantly cheaper at retail at Wal-Mart, Best Buy, or Target than I can at the Wholesale prices that VPD charges me.

  4. Visitor [Join Now]
    Brett [visitor]

    Just so you guys know blockbuster does not have mountains of debt. The story writer didn’t do his research well enough it seems. The only debt thats been in the NEWS lately for Blockbuster is the writen off bad debt owed to them… From late fees and member owned games and movies. Get yoour facts straight dipshits.

    • Visitor [Join Now]
      Joey [visitor]
      I work for VBG. To find out why this is important, click here.

      It actually sounds positive for them

      Blockbuster Inc. has closed its offering of $675 million in senior secured notes.

      The issue price is 94%, and the notes are due in 2014.

      The company announced it will use the proceeds to repay all indebtedness outstanding under its revolving credit facility and Term Loan B, its revolving asset-based loan facility in Canada, fund fees and expenses of the transaction, and for general corporate purposes. The letters of credit outstanding under the revolving credit facility will remain outstanding.

      “The completion of the $675 million notes offering is another important milestone for Blockbuster,” said Blockbuster chairman and CEO Jim Keyes. “We are pleased with this expression of investor confidence in the sustainability of our business model. This will enable us to increase our points of presence and expand the depth and breadth of product selection and convenience across all of our channels.”

      The new offering, sale of Irish assets and other recent moves provide Blockbuster “with adequate liquidity and the flexibility to continue our business transformation,” Keyes said.

      The company also hailed an upgrade of its credit rating by Standard & Poor’s Rating Service and Moody’s Investor’s Service’s placement of Blockbuster’s credit rating on review for an upgrade.

      • Shane Smith [shane9]

        “The company also hailed an upgrade of its credit rating by Standard & Poor’s Rating Service …”

        True, but the rating was raised one tiny step to a “B-” from “CCC”. “CCC” is about the LOWEST grade a company’s credit rating can receive from Standard & Poor. Relating the S&P scale to the college grading system, this is like having your professor raise your grade from a D-minus to a D or D-plus. Technically a higher grade, yes, but still not something your folks will be happy about. Hence my line in the post about “finding the bright side in everything”.

      • Member [Join Now]
        Mark [rb123456789]

        “Secured” means Blockbuster essentially mortgaged some of their assets, and if Blockbuster defaults the lenders get the assets. “Senior” means the notes get paid before other lenders and creditors. So this deal doesn’t mean investors have any faith they are on the right track.

        When a company which could be forced into bankruptcy because it’s close to out of cash receives a cash infusion, it’s in better shape in the short term but are really just buying time. If they can’t use that time and cash to turn things around they will still fail.

    • Shane Smith [shane9]

      Just so YOU know, Brett, Blockbuster remains deeply in debt. The recent senior secured note offering in a sense trades some short-term debt for notes that will be due in five years. This is a refinancing step designed to give the company some liquidity and financial breathing room.

      Could this move help them out? Definitely. At the end of the day, though, debt is still debt. Get YOUR facts straight before you post derogatory comments, please.

      • Visitor [Join Now]
        Joey [visitor]
        I work for VBG. To find out why this is important, click here.

        Why not report something that pertains to red box like the fact that warner and fox both responded to red box’s lawsuit and if you read them ( which I have) Lead most people to believe that red box’s lawsuits are frivilous and after the judges read them they won’t have any option but to dismiss them (my opinion).

        • Visitor [Join Now]
          Jody [visitor]

          …because I thought the topic here was about BB?

        • Administrator
          Michael [administrator]

          We have posts related to this lined up for over the weekend, so there will be more discussion about this.

          Also, please do not continue to repost the same news story over and over again. The software sees it as spam, and will automatically ban you from posting.

          As I have said before, your comments are perspective are welcome here, but abuse of the system is not.

  5. Visitor [Join Now]
    FoxWins [visitor]

    @Shane – Perhaps you should get YOUR facts straight. You’re a dumbass, which is why the highlight of your career is getting paid effectively minimum wage on this crap site.

    Blockbuster remains deeply in debt? Relative to whom? Redbox carries $500 Million in debt and generates less cash flow than Blockbuster.

    If you took your head out from your ass, you’d realize that the refi was just one of many steps that Blockbuster has recently taken. Other steps include international asset sales and reduction in LCs.

    Keep up the bad work. It’s why you’ll continue earning $1 per post.

    • Visitor [Join Now]
      Jody [visitor]

      …..and we sure do count on reading these immature posts of yours. Way to look bad.

    • Administrator
      Michael [administrator]

      Great way to come back to the site after a long absence, FoxWins.

      Your personal attack on Shane is unwarranted and unnecessary. If you want to share your thoughts here, that is fine, but more posts like this one will get you banned from this site.

      • Visitor [Join Now]
        Brady [visitor]
        I work with VBG. To find out why this is important, click here.

        I’d like the same warning to go out to all. Including perhaps the greatest abuser, Mr Crazy himself.

        • Visitor [Join Now]
          Robert [visitor]

          I think FoxWins got this is because he attacked Shane and the site. If crazy starts in on the site, Shane or Michael, I think he will get the same warning.

          I like posting my opinion but I know not to personal attack the site or a writer for the site…

        • Visitor [Join Now]
          Linda [visitor]
          I work for VBG. To find out why this is important, click here.

          I agree. Movie Crazy constantly has personal attacks with foul language but not once was a warning ever given out to him it’s just allowed. I guess it all comes down to which side of the arguement you come down on the for or against! Keep up the good work foxwins because shanes fact’s were incorrect.

  6. Member [Join Now]
    Carson [carson]

    I didn’t think anyone ever bought DVDs at blockbuster….
    When they are new, they are cheaper at Walmart or Target. When they are used, they are cheaper on Amazon.
    I thought people only bought used or old dvds at a retail store if they didn’t have access to internet….

    • Visitor [Join Now]
      TexasRebel [visitor]
      I work with VBG. To find out why this is important, click here.

      Previously viewed from a store isn’t too bad if you want to. Plus you can have a clerk fix it if it’s scratched, something you are not going to get from online.

      I gave up on Amazon and E-Bay years back when I got 3 pirate copies in a row.

      The pirate copies played just fine, but you can tell the difference. A slight difference in the color quality of the box art to blatant purple burned discs!!!

      Why even bother buying all together today though?

  7. Visitor [Join Now]
    Sean [visitor]

    I would never buy a movie from Blockbuster. I do not buy movies unless I rent them first (from redbox), and if it’s good enough for me to want to buy, I’d buy it from somewhere else. Preferably wal-mart or amazon.

  8. Visitor [Join Now]
    Joey [visitor]
    I work for VBG. To find out why this is important, click here.

    In the ongoing fight between Redbox–which rents DVDs from kiosks for $1–and major Hollywood studios, 20th Century Fox Home Entertainment just filed a brief to dismiss Redbox’s lawsuit against it.

    Said Fox in a statement:

    “Redbox’s legal claims are fatally flawed. Fox’s filing today makes clear that, in the end, the case is all about Redbox’s refusal to make a business deal on general terms similar to those paid by others in this industry. Instead, Redbox has insisted that Fox sell DVDs to them through distributors, on the date they demand, at the price they want to pay. Unable to get the terms it wanted at the bargaining table, Redbox instead decided to file this meritless lawsuit.”

    In a statement, Redbox president Mitch Lowe responded to the filing by stating that Fox was anti-consumer.

    “Twentieth Century Fox continues its pursuit to prohibit consumer access to new release DVDs at affordable prices…Redbox remains steadfast in our commitment to protecting consumers’ rights and to providing our customers the DVDs they want, where they want and at the low price they want.”

    In two briefs filed this afternoon, refuting Redbox’s allegations, Fox is asserting that it has not refused to provide DVDs to the outfit and has tried to negotiate a deal.

    Under contention between the two are the price and terms of when DVDs of hit movies can be released to Redbox.

    Redbox has asserted that Fox is violating antitrust laws and copyright misuse in not selling DVDs to the company.

    Fox denied that claim in the brief, noting that Redbox simply did not want to pay up in order to get certain DVDs on the “street date,” as do other retailers.

    Fox is one of three studios that have become embroiled in lawsuits with Redbox.

  9. Member [Join Now]

    BB is moving towards SELLING DVDs and renting DVDs 50/50 in their remaining stores? Are they mad? No one that I know would go to BB and pay the suggested retail price for a DVD when they can go to Walmart, Target, KMart, Meijer, etc. and get the same DVD for $10 less. All of this reminds me of BB’s ill-fated “Blockbuster Music” chain of stores in the late 80s and 90s, which went the way of the MiniDisc. For the BB kiosks to succeed, they will need to keep the price at $1 to compete with RB, have a better selection of movies, and have more locations than RB, which here where I live, is impossible(We now have 15 RB locations, with area Kroger stores-all 5 of them!-switching over from The New Release kiosks, which will be the “rebranded” BB kiosks). BB is hanging on by a thread now. Funny how the CEO of BB said several months ago that “Redbox isn’t our competition”, and how six months later, BB is closing stores, and the studios have filed suit against RB preventing them from renting their DVDs on the street date. Coincidence? I don’t think so!

  10. Visitor [Join Now]
    Terry [visitor]

    This is a response to John’s comment at the top of the list. Redbox doesnt pay less for their dvds they just charge less. This is something Sam Walton figured out back in the 50’s, more sales at a lesser profit are greater than marginal sales at higher profits. Places like BB pay the same price as Redbox but want the higher profit margins. This is why certain movie studios back BB…who hasn’t gone in to a BB and thought “You want how much to rent a dvd? For a couple dollars more I can go buy it.” The studios want you to have that thought in your head. I don’t think that RB is the end of dvd sales though. I will still buy a dvd if its a movie I really like. Something like Star Wars or LOTR. I will never buy National Lampoons Dorm Daze or any movie like that. I will spend a dollar to watch it though.

    • Visitor [Join Now]
      John Small [visitor]

      I’m sorry Terry but your facts are incorrect.

      Redbox was getting special consideration from wholesalers in regards to their purchases. This is a fact. It is know by anyone who knows anything within the industry.

      Even Michael, who runs this site, has admitted that Redbox had a special deal in place with the wholesalers.

      Please get your facts straight before you comment. Otherwise you just look ignorant.

  11. Visitor [Join Now]
    Zachbk [visitor]

    Just a question after reading this discussion…

    Is it not that Redbox had the same “special” consideration that other retailers had and now some of the studios want to discriminate and now not give this “special” consideration to RB, but continue this “special” consideration with other retailers that are willing to charge more?

    • Visitor [Join Now]
      taxman [visitor]
      I work with VBG. To find out why this is important, click here.

      In short, No.

      I think they are saying that RB was getting buy backs for all their movies that didn’t sell or there were too many.

      The indies and BBs of the world were not.

      • Visitor [Join Now]
        John Small [visitor]

        Redbox was getting a exclusive deal that allowed them to sell off their used titles after a couple of weeks to their wholesalers for about half the value of the new DVD.

        No other video store has this option.

        The glut of used DVDs may actually cause Redbox’s wholesalers to go bankrupt.

        If that happens, then the studios do not get paid for their product.

        Therefore the studios are well within their rights to demand that wholesalers refuse to sell to Redbox.

        If Redbox wants to play on a even playing ground, then they are more than welcome to do so.

        The problem is that Redbox has such small margins on their rentals that even buying 15 DVDs at full price for each machine would mean that they would be losing money.

        This is not a sound business model. It is one that has to change. Redbox knows it but they want to blame the studios when they are forced to raise their prices.

        • Administrator
          Michael [administrator]

          You keep harping on this issue that Redbox has a “special deal” with the wholesalers. So what? What prevents other DVD rental outfits from getting this same deal? I am pretty sure the Redbox Mafia aren’t telling Vinnie over at Ingram that if he makes good deals with other buyers that he will be “swimming with the fishes”.

          The only reason a wholesaler would offer any kind of deal to a buyer is if it was benefiting them financially. If the wholesaler stops making money, they change the terms with their buyer. What need does the studio have to get involved at all? The studio is still getting the same amount of money from the wholesaler, right?

          I see you mention the wholesalers going bankrupt – yeah, right! Like Ingram and VPD are going to go bankrupt over ONE account in ONE segment of the MANY industries they do business in (Books, Music, Video Games, etc…). That is about as likely as the studios going bankrupt over this. And, like I said, the wholesalers can change their terms with their buyers if it is no longer working for them. Is that so hard to understand?

          Of course, the studios could stop using wholesalers and just take care of sales themselves. Do you think that would make them more money? If so, then why aren’t they doing it?

          The problem is not that Redbox is “getting a special deal”, it is that the studios are trying to take away their right to buy movies and do with them as they see fit. If I buy a movie, I am certainly not going to let a studio tell me when I can watch it. If I want to loan it to someone, I can. If I want to rent it to someone, I can. If I want to resell it for half-retail price, I can. If I want to use it for skeet shooting, I can. That is how the first-sale doctrine works. Until the law changes, no one should be able to tell me what to do with what is now my property. Why should Redbox be treated any different?

          If Redbox has to raise their prices, so be it. But it should be because the price no longer works for them, not because the studios want to put them out of business by denying them – and ONLY them – access to movies the same day others can buy them. If they want Redbox to wait 30 days to get a movie, then simply raise the price of a DVD by 50% or more for the first 30 days it is available. But don’t do it just for Redbox, do it for everyone. Simple and fair.

          • Visitor [Join Now]
            Joey [visitor]
            I work for VBG. To find out why this is important, click here.

            As you say simple and fair….
            The studios own the content. THEY decide who to do business with.
            If a company comes along with pricing that devalues their product and threatens the very business they are in it is their right and responsibility to protect it’s product and industry.

            As you said…..(If the wholesaler stops making money, they change the terms with their buyer.) This is one of the things they did do was lower the price of the buybacks because they to were hemoraging business and $ due to their dealings with redbox and the flooding of product into the market. When they were asked to deny titles to redbox I know personally they were elated I’ve spoken with them. Not very often that a company roots for their biggest client to fail it insinuates that something is wrong.

            You asked…(What need does the studio have to get involved at all)
            It is their product being devalued of course they would get involved.

            You said….(the studios want to put them out of business by denying them – and ONLY them) this statement is incorrect this involves all kiosk not just red box and this business model because it is a broken business model that is destroying an industry and devaluing a product. I’m not sure why you are skewing this because I know you know this involves Blockbuster express,DVD Play, and everybody else.

            You said… (Of course, the studios could stop using wholesalers and just take care of sales themselves. Do you think that would make them more money? If so, then why aren’t they doing it?) Because in the end it destroys their business and most people in this industry see this regardless of how many extra rentals redbox adds to the pie. In the end it is a net negative impact.

            Obviously Michael we are both on different sides of the fence on this issue. I appreciate your allowing the debate to rage on. I do think people get to see both sides of the issue and form their own opinions of the events that are shaping our industry.

          • Visitor [Join Now]
            Middleman [visitor]
            I work with VBG. To find out why this is important, click here.

            VPD and Ingram “NOT” suing the studios should speak volumes on where they stand.

  12. Visitor [Join Now]
    angry jerry [visitor]

    blockbuster is dead and i won’t miss them!

  13. Visitor [Join Now]
    angry jerry [visitor]

    the bottom line is the studios want more of our money and most of us don’t
    want to give it to remains to be seen who will budge first.

  14. Visitor [Join Now]
    Phil [visitor]

    I’ve been to a Blockbuster three times this year to rent back seasons of LOST because I didn’t want to wait for Netflix to deliver the eps I wanted to see. That was the first time in about 5 years that I have been to one and won’t miss them if they fade away …

  15. Member [Join Now]

    Michael, when you said above about “watching the movie when you want to” reminded me of the ill-fated DIVX format in the late 90s, where after first watching the disc you had only 48 hours after that to watch it or it would become unwatchable. Almost sounds like DIVX kinda violated First Sale Doctrine a bit.

  16. Member [Join Now]
    GameDoctor [gamedoctor]

    Does anyone know if Blockbuster is planning on discounting their DVD selection they are selling so that they could theoretically compete?