The other day we were able to hear some commentary from Redbox CEO Mitch Lowe about his company’s position in the current drama with the studios. Now comes some further insight from the CEO of Redbox’s parent company, Coinstar. At a New York investors conference yesterday, Coinstar CEO Paul Davis said that Redbox is in “daily negotiations with studios in an attempt to reach a distribution agreement”.
Regarding these negotiations, a compromise is not off the table, according to Davis:
“If you ask the studios what they like, it really comes down to price points and/or [distribution] windows. . . In their perfect world, we’d be charging the same price point as Blockbuster, I suspect. . . We’re trying to figure out a win-win situation. Both sides have to figure out a way to give a little.
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During his remarks, Davis also estimated that the three studios Redbox is currently suing (Warner, Fox and Universal) “represent about 40% of Redbox’s supply chain”. This number is consistent, according to Video Business, with Rentrak estimates of studios’ rental market share for the first half of the year.
Davis also had a few interesting comments to make about Redbox’s plans for the near future. He said that Redbox will be installing software in some of its kiosks that will allow variable pricing, ostensibly for items such as Blu-ray discs and video games. Even more interestingly, Davis also revealed that Redbox will begin testing a subscription model at select kiosks.
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No further details were given.
How do you think Davis’ comments jibe with what we heard from Mitch Lowe a few days ago, Insiders? How far do you think either side is really willing to compromise in this fracas?
[via Home Media and Video Business]
Great post, Shane.
It is definitely true that both sides need to give a little here. Redbox definitely has the better story by “protecting consumers” from artificial price inflation.
Can the studios shed the image of being greedy and do something that benefits everyone? The jury is still out on that one, but I truly hope so.
What else is Davis going to say at an investors meeting?
Wonder if the Universal, Fox, & Warner executives would say the same thing?
Of course they want both sides to give a little. Coinstar wants to give 5% & they want the studios to give 95%.
I agree. These quotes are more meant to keep investors happy. Regarding protecting studios, I liked the approach that one studio took recently – they released movie on “Pay per view” first, even before releasing on DVD. That would give them some additional revenue boost.
All of these last few articles that have been posted on here all revolve around red box and coinstar trying to shed as much positive light on this situation (reassure investors) as possible before the shocks are felt from the studios and the litigation.
The fact that redbox is in daily negotiations is not a revelation of course they are trying to solve the problems they are about to experience. The thing that is happening is that the studios aren’t budging on the pricepoints or red box raising their rates or them being windowed. Even this Litigation was used by red box as a barganing tool. I’m sure at some point they will resolve this and kiosk will still be around ( windowed ). I don’t however believe anything is going to be resolved before these lawsuits get solved because the studios feel they will be dismissed strengthing there barganing position.
I don’t know what people think though …. (At a New York investors conference yesterday)….. do you think that he would say things suck and they are going to get worse? No they use these confrence calls to reassure investors and draw new investment. I have never heard a negative investors meeting ever!
Quoted from that same conference ““If you ask the studios what they like, it really comes down to price points and/or windows,” Davis said. “In their perfect world, we’d be charging the same price point as Blockbuster, I suspect.”
“I suspect” that he doesn’t know because they aren’t really negotiating anymore
Quoted from same conference “Davis noted that new software is being deployed this month to Redbox machines nationwide to allow for variable pricing”
“I suspect” this might have something to do with them raising their rates soon along with blu-ray and games
WOW!
For once, I must agree with the studios on this matter.
I am a video retail store, renting DVD’s, and paying the same price as my “brick and mortar” competition is, roughly.
While Redbox and their spawned competitors are proliferating, their $1 a night business plan is just not feasible for long-term profit, and certainly not in the short term.
What they are asking is for a break in pricing, since they are renting so low.
Isn’t the pricing they have their own choice? Why sue the studios. Why not trot into the very stores they have their kiosks, and purchase at full price, as I have done, the week’s latest movies?
Just where do they get the idea they are special?
If a Chevrolet dealer started selling new cars for $9500, he would be inundated, and celebrated as the new success story in the auto industry. People would flock to take advantage of his prices.
However, $9500 Chevys, just like $1 rentals, cannot be sustained. After all the other dealers went out of business, the Chevy dealer would suddenly decry GM’s refusal to sell him cars for $8500 to facilitate his great idea. Perhaps he’d sue them.
I hate the old saw about “level playing field” but this is the case, and I hope the studios hold out and win their lawsuits. I believe they have a right to determine the pricing on their product. The kiosks should have it the same day and date as the rest of us do…but at the same price we pay. Fair is fair, and their efforts show the same economic faulty thinking that seems to be driving our whole country today.
If their idea is good, may they do well….and if they can’t stand the prices the rest of us pay…then it may not be a superb idea, after all….
I agree with you 100% on one point: the playing field should be level for all DVD retailers.
The difference is, I think the studios are trying to make the playing field unlevel, which is why Redbox sued them, not the other way around. I don’t think Redbox is asking for lower prices from the studios, they are asking for “day and date” rentals, which the studios are trying to take away from this.
However, I do think Redbox should get as good as prices as they can from those they buy their DVDs from. Just because you buy 30 copies of a hit title from a wholesaler at $15 per DVD, doesn’t mean Redbox should be forced to pay that. Considering they might buy 200,000 copies of that same DVD, a wholesale might choose to discount their price to $12 per DVD. Are you saying that is wrong? If so, you are advocating price fixing, which in many instances is against the law.
With all of the debate around this issue lately, I think friends of the studios are trying to obfuscate the issue, talking about “devaluing the industry’ and a “broken business model”. If Redbox’s business model is “broken”, they will be forced to change it or go out of business. But, if on a level playing field, Redbox can charge $1 per night for rentals and still make a profit, than they should be able to do so.
I agree that studios should be able to charge whatever they want for their product, as long as they are doing it across the board based on standard or volume pricing. If they charge wholesalers $11, and wholesalers are content on charging Redbox $12, and Redbox makes a profit and is happy, what is the problem?
What I think the studios are trying to do is make an unlevel playing field by telling kiosk owners that they can’t rent their DVDs until x days after a release, but if you are a brick-and-mortar store, or Netflix (sort of), go ahead and rent them the same day. Do you really call that level?
I see a lot of comments on this site that claim that Redbox is charging too little for their rentals and they are devaluing the movies. I don’t understand why they are viewed that way. Back in the VHS days when most tapes were around $100 each, higher priced rental charges made sense. Now that the DVDs are about $15.00 each, a dollar per day sounds like a fair price. That dollar per day rental today would have been the equivalent to almost $7.00 per day back in the VHS days based off of $100 VHS and $15.00 DVD. I don’t remember rental charges that high. Maybe I am missing something, but I see nothing wrong with Redbox.
I have not been to a rental store in awhile, but I remember most of them charged $4.00-5.00 per rental, but you got the movie for 3-5 days. $1.00 per day is not far off of that. Plus I thought I read somewhere that the average Redbox renter keeps the movie for an additional day. I welcome everyone’s thoughts. -Mikey
Wal-Mart buys more DVDs than Redbox. Blockbuster buys more DVDs than Redbox.
Why should Redbox expect to pay less than Wal-Mart and Blockbuster?
John Small:
Go back and read Michael’s (the administrator) statement, before posting another pointless comment disguised as a question. Once you read it, you’ll understand why you should have read it before posting your comment. K? Thanks.
This is from a heavyweight in the video industry and directly contrast a posting on this site the other day:
found at http://www.thewrap.com/blog-entry/redbox-roulette-gambling-industrys-future-8360
TheWrap recently ran a blog post by Redbox CEO Mitch Lowe titled, “We Are the Engine for Industry Growth.” Lowe states that Redbox’s business — based on $1 DVD rentals — will “grow overall interest in and purchase of DVD entertainment.”
As the CEO of a Hastings Entertainment, a retailer that pioneered low-cost rentals, I understand firsthand Lowe’s enthusiasm for $1 DVD rentals. Consumers love the price, and we love the increased business that $1 DVD rentals bring.
But there is one crucial issue involving $1 DVDs that Lowe fails to address — and it must be acted upon if we want to prevent what is happening to the newspaper industry from happening to the entertainment industry: We must prevent the devaluation of new entertainment products.
We simply cannot give away products that cost hundred of millions of dollars to produce or else we will end up just like the newspaper industry, which now has an unsustainable business model.
Once the main product of an industry is artificially devalued, the negative economic impacts will ripple throughout the industry, impacting the workers and businesses that rely on the overall industry. Let’s not create a modern-day “Goose that laid the golden egg” parable.
I believe there is a solution that allows Redbox to continue charging $1 for DVDs — on a release schedule that fits in with the current model of the entertainment industry. The movie business has an established release model — called a windowing model — based on releasing movies, pricing tickets, and selling and renting DVDs. Instead of disrupting this model by renting $1 DVDs as soon as they become available, Redbox needs to compromise by integrating itself into this established industry model.
Here is how the release windows work: The studios initially provide their movie to theater owners, enabling them to provide consumers with national access to a wide variety of films. Then that content goes to the home entertainment window, where consumers can buy or rent a physical copy or an electronic copy of a film. The content then travels to the pay TV window, and finally to cable.
The Redbox $1 movie rentals cannot expect to disrupt this model without having disastrous consequences for the income streams of the movie industry.
For example, if new releases would be available for $1 rental, consumers would be encouraged to forgo watching a movie in the theaters and instead wait a few months. Consumers would be discouraged from renting from bricks-and-mortar video stores — putting these stores out of business and reducing access to the thousands of movies that can’t fit into a kiosk. Consumers would be discouraged from watching the movie on pay TV or streaming to their computer for $3.99 when the movie can be rented for a single dollar. Consumers might not buy a DVD if they know they can rent it occasionally for just $1. And the examples go on and on. If movies are devalued in this way, those who work in the movie industry will be directly harmed. Reduced industry revenues will mean that fewer movies are produced — directly reducing the number of jobs available to people who work both in front of and behind the cameras.
These negative impacts are not theoretical. The decision by the management of newspaper companies to give away their product online is now having extraordinarily serious economic consequences — not just for the management of these newspaper companies, but for the workers and reporters who have lost their jobs by the tens of thousands.
Mitch Lowe’s approach to $1 DVD rentals might make him a lot of money in the near term, but it will destroy the entertainment business and result in thousands of lost jobs in the months ahead. There is a way to prevent that from happening if Redbox would try to work with the entertainment industry instead of against it. $1 movie rentals have a role in the entertainment industry’s “windowing model,” and if Redbox truly has the consumer’s best interests in mind, it will work with the studios on an appropriate release model. Now that would be a true win-win-win for Redbox, the movie studios and consumers.
This is indeed a great counterpoint to Lowe’s article. We’re actually going to be putting up a post about this later tonight.
Hey igloo, isn’t that why the studios introduced the bluray discs, to replace a dying form of media and still play to the interest of the consumers. the cost to reproduce DVD’s has gotten cheaper and studios still want to charge the same price before the dawn of bluray. Although redbox rents blurays at $1, I don’t think it can sustain that price once bluray is the status quo and they have to start stocking more bluray discs in their kiosks. But to suggest that Redbox is devaluing a form of media that was waning before $1 rental kiosks, is disingenuous. Redbox is to the film industry as iPod was to the music industry. Change is inevitable!
I was talking to one of the higher ups from Warner earlier this week and asked him about his opinion of Redbox and the negotiations.
His opinion is that Redbox has burned a lot of bridges over the last couple of weeks trying to play hardball with the studios. Every one of these press releases is making the powers that be dig their heels in even more.
Finally, he said that if Redbox wants to revenue share like the BB or the indies then this lawsuit will be over in seconds. Unfortunately, Redbox would be out of business in 3 months at those levels.
What is the expected COGs at those levels? About $10.00 a disc. So you know that Redbox is paying less than that if they won’t agree to that deal.
Looks like Redbox is up a creek without a paddle.