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medium_dr_evil_1On Friday, the Chicago Tribune ran a story chronicling Redbox’s history, its recent scuffles with some major Hollywood players and its rise to become one of the titans of its industry. It’s an excellent article and well worth a read for any Redbox fan (or foe). Here are some highlights:

One Billion Dollars
Redbox reached sales of $388.4 million last year, and is on track to hit $1 billion in sales in 2010, according to analysts not cited in the article.

Market Share Multiplied
The percentage of videos rented from kiosks (among which Redbox is the dominant player) has leapt from 2 percent in the first quarter of 2007 to 19 percent today, according to research firm NPD Group Inc. Blockbuster and other traditional brick-and-mortar stores have seen their market share reduced to about 45 percent, while Netflix and similar businesses comprise the remaining 36 percent.

Old School Origins
Back in 1984, Redbox CEO Mitch Lowe started a company called Video Droid. Lowe had been a partner with a video rental company and was tired of the overhead costs associated with the business. With some partners, he retrofitted regular soda vending machines to dispense VHS and beta tapes and placed them in grocery stores. Lowe built 60 machines before the business failed.

Nearly twenty years later, Lowe was a consultant to McDonald’s and became part of the Redbox project team that developed the kiosks with Coinstar.  This time around, Lowe has been able to see that his video vending machine idea had potential after all.

“I hate losing,” Lowe said. “I hate the fact that I failed with what I thought was a great idea.”

Give the People What They Want
Redbox gets its consumer data from biweekly surveys of 20,000 to 40,000 customers. Lowe credits much of the company’s success to its habit of listening to its customers and giving them what they want:

“(Our customers) are telling us that they have really fallen in love with Redbox. But they’re also telling us that they really want films in lots of different ways. . . We’re going to let the customer decide.”

As they explore new options, including downloadable videos and video game rentals, Redbox is clearly listening to its customers and not resting on its studio-infuriating laurels. Whether you are a dedicated fan or an angry opponent, there’s no denying the company has accomplished a lot in its relatively short history.

With many opportunities and just as many challenges approaching in the near future, where is Redbox going from here, Insiders?

[via the Chicago Tribune]

11 Responses to “Redbox Expected to Hit $1 Billion in Sales in 2010”

  1. Visitor [Join Now]
    dillyclm [visitor]

    article on new chain of stores to compete w/ Redbox. BM versus kiosks …I doubt it.

  2. Member [Join Now]
    Joey [joey-2]
    I work for VBG. To find out why this is important, click here.

    Redbox picks an antitrust fight
    The budget DVD distributor claims that Hollywood is ganging up on it.
    Amanda Bronstad

    October 19, 2009

    Hollywood movie studios are turning up the volume against Redbox, recruiting some of the nation’s top antitrust experts to wipe out three lawsuits whose outcomes could determine the future of the DVD market.

    Redbox Automated Retail LLC, a subsidiary of Coinstar Inc. based in Oakbrook Terrace, Ill., has been rapidly erecting red kiosks at stores across the country that offer DVD rentals for $1 per night, substantially less than most retailers. Since its founding in 2002, Redbox has exploded into 15,000 locations at retail spots including Wal-Mart Stores Inc. and McDonald’s Corp.

    Its growth has threatened the studios, which have seen DVD sales plummet substantially in recent years. Some studios have cut deals with Redbox. Three others — Universal Studios Home Entertainment, Warner Home Video and Twentieth Century Fox Home Entertainment — have announced policy changes designed to limit the immediate availability of newly released DVDs to kiosk retailers including Redbox. The new policies don’t shut out Redbox completely, but they do require the retailer to wait for at least a month before getting access to the latest DVDs.

    Redbox has aired its gripes in court, alleging that the studios have crafted an illegal monopoly over the DVD market and are violating Section 1 of the Sherman Act, the federal antitrust law.

    Mitch Lowe, president of Redbox, said recently that the new studio policies hurt consumers. “Redbox remains committed to providing our customers the new-release DVDs they want, where they want and at the low price they want,” he said.

    In August, a federal judge in Delaware refused to dismiss Redbox’s antitrust claims against Universal. Since then, Universal, armed with attorneys from Munger, Tolles & Olson in Los Angeles, has asked that the ruling be certified for appellate review. Last month, Warner Home Video and Fox recruited antitrust litigators from Chicago’s Kirkland & Ellis and New York’s Cravath, Swaine & Moore just before filing their first motions to dismiss on Oct. 1 in two separate cases.

    Both studios assert that Redbox has failed to establish how the new policies harm consumers, who would be free to choose another studio’s newly released DVD or rent movies through other retailers, such as Netflix. The studios insist that they simply are making business decisions, not violating antitrust law. “The basic problem with their case in our view is that they are trying to turn an unsuccessful business negotiation into an antitrust violation,” said Fox’s attorney, Corey Watson, a partner in the Los Angeles office of Kirkland & Ellis. “The parties tried to negotiate a deal and didn’t reach an agreement.”

    Redbox, which has thrived on its low price and convenience, has surpassed Blockbuster Inc. in the number of DVD rental locations in the United States. Redbox’s $1-per-night rental price compares to the average of more than $3 per night charged by most outlets, according to the company’s court documents. Redbox sells used DVDs for as little as $7, compared to an average price of $18.50.

    At the same time, studios have seen their DVD sales tank. According to Digital Entertainment Group, a trade association for the home entertainment industry in Los Angeles, DVD sales fell by 9% in 2008. Combined DVD and Blu-Ray sales fell by 13.5% during the first half of 2009.

    Some studios have cut deals with Redbox. In July, Redbox signed an agreement with Sony Pictures Home Enter­tainment, a segment of Sony Pictures Entertainment Inc., whose North Amer­ica president, David Bishop, conceded in public statements that “clearly Redbox has become an important distribution option.” In August, Paramount Home Entertainment Inc., a subsidiary of Via­com’s Paramount Pictures, signed a trial license program with Redbox through the end of 2009. Lions Gate Entertainment Corp. has signed a distribution deal with the retailer.

    Studios that couldn’t reach deals now face litigation.

    Chris Goodrich, a spokesman for Red­box, declined to comment for this story. So did Redbox’s lawyers, who include Henry E. Gallagher, a partner at Connolly Bove Lodge & Hutz, and James S. Green, a partner at Seitz, Van Ogtrop & Green, both in Wilmington, Del. Rounding out the Redbox team is Charles S. Bergen, a principal at Grippo & Elden in Chicago.

    According to court documents, Redbox gets its movies from two distributors, Ingram Entertainment Inc. in La Vergne, Tenn., and Video Product Distribution, or VPD, in Folsom, Calif.

    In its suit against Universal, filed on Oct. 10, 2008, Redbox said that the studio’s representatives approached the retailer with an offer: Under a “revenue sharing agreement,” Redbox could deal directly with the studio but would not be allowed to rent out Universal DVDs until 45 days after their release. When Redbox refused the offer, VPD and Ingram, under direction from Universal, refused to fill Redbox’s orders for Universal DVDs on Dec. 1, according to court papers. Redbox claims that Universal then expanded its campaign into a “group boycott” that now includes other wholesalers and retailers, such as Best Buy Co. Inc. and Wal-Mart. Some of these companies have canceled orders or limited the number of DVD copies they provide to Redbox.

    “Defendants’ true purpose in seeking to impose the Revenue Sharing Agreement is to eliminate choice,” Redbox argues in its court papers.

    Redbox makes similar claims in subsequent suits against Fox and Warner Home Video.

    Redbox sued Fox on Aug. 11 after the studio ordered Ingram and VPD to stop sending Redbox newly released DVDs. Redbox had rejected a blackout period of 30 days.

    “Fox’s tactic…hearkens back to the days when Fox and other studios controlled the entire distribution chain under the old ‘studio system,’ when they sought to choke off the supply of content to the new television medium during its infancy, and later, when they fought the introduction of the VCR in the 1980s,” Redbox claims in court papers.”

    Redbox filed its suit against Warner on Aug. 18 after the studio told its distributors not to sell newly released DVDs to kiosk rental companies such as Redbox, according to court documents. Redbox had refused to accept a blackout period of 28 days. The new policy becomes effective on Oct. 27..

    One day before filing its Warner suit, Redbox got a big boost: U.S. District Judge Robert B. Kugler, sitting by designation in the District of Delaware, who is presiding over all three suits, threw out Redbox’s claims in the Universal case for copyright misuse and contract interference but retained the core antitrust allegations.

    “The Court is convinced that Plaintiff sufficiently pleaded that Universal has induced or otherwise convinced others to boycott Redbox in distribution of Universal DVDs, producing anti-competitive effects, specifically Redbox’s inability to compete in the DVD rental and sales markets of Universal DVDs,” he wrote. “Further, the Court finds that Plaintiff has sufficiently pleaded the illegality of Universal’s actions, and that those acts are the proximate cause of economic and other injuries to Plaintiff.”

    The story is far from over. Recent U.S. Supreme Court precedents “have really put limits on the ability of distributors to make these kinds of complaints,” said Daniel Swanson, co-chairman of the antitrust practice group at Los Angeles-based Gibson, Dunn & Crutcher. The ruling in the Universal case is “not any kind of sign that the court has prejudged this as a case likely to merit on the facts.”

    To successfully sue under Section 1 of the Sherman Act in a distributor case, Redbox has to do four things: define the relevant market at issue, prove that the defendant has substantial power in that market, outline why the defendant’s acts aren’t reasonable business decisions and demonstrate the detrimental effect those acts have had on the market.

    “If I were a betting man, I’d bet they’re not going to be in court all that long,” Swanson said of Redbox.

    In their motions to dismiss, the studios have attacked Redbox’s multiple attempts to define the market and the power that each studio or one of its movies has in that market. The new policies, they say, would not prevent other studios from providing their DVDs to Redbox under their own terms, nor stop consumers from renting newly released DVDs via other companies, such as Netflix.

    “The real complaint is Fox won’t sell DVDs to Redbox on the terms Redbox demands, and that is not in our view an antitrust violation,” said Watson, an antitrust expert who has teamed with Yosef Riemer, a litigation partner in Kirkland & Ellis’ New York office, in representing Fox, part of News Corp.’s Fox Filmed Entertainment. “There’s nothing in the law, antitrust or otherwise, that says a seller must sell its product at the price that the buyer demands on the date the buyer demands and through the distribution channel that the buyer demands.”

    Warner Home Video’s attorney, Kath­erine B. Forrest, a partner in the New York office of Cravath, Swaine & Moore, declined to comment. Forrest, a longtime lawyer for Time Warner Inc., parent company of Warner Bros. Entertainment Inc., which operates Warner Home Video, specializes in antitrust matters involving digital media. She recently represented Mylan Inc. in its $6.7 billion acquisition of Merck KGaA’s generic pharmaceutical business.

    In their motions to dismiss, Fox and Warner Home Video attempt to distinguish between their actions and Redbox’s complaint against Universal. Unlike Universal, Redbox did not accuse them of organizing a “group boycott” that involves retailers such as Best Buy and Wal-Mart. That means, Watson said, that Redbox could have a more difficult time arguing that no alternative means exist of obtaining newly released DVDs.

    On Sept. 30, Universal moved to certify the judge’s ruling for interlocutory appellate review.

    Universal’s lawyer, Glenn Pomerantz, an antitrust partner at Munger, Tolles & Olson, did not return calls for comment. Pomerantz successfully represented Movielink, a joint venture of five movie studios aimed at providing video-on-demand services, in numerous governmental investigations of antitrust violations. He also defended claims brought by independent video retailers alleging that Blockbuster and the studios were driving them out of business.

    • Member [Join Now]
      Joey [joey-2]
      I work for VBG. To find out why this is important, click here.

      Michael either remove your lame ass banner (no clue) from my login or I’ll quit contributing on your site.

      • Visitor [Join Now]
        Jody [visitor]

        why does that matter to you???

      • Member [Join Now]
        lakrow [jbromert]

        I hope that’s not an empty “threat”. PLEASE, quit “contributing” to this site.

        In any case, your posts are a waste of time to read. Almost all the content of that extremely LONG post was old news. I, for one, won’t read or respond to your posts after this, so feel free to to yell at me, call me names, put me down or whatever – you won’t get any response from me.

  3. Visitor [Join Now]
    Beth [visitor]

    I just want to say that after watching a movie I rented from Redbox, I went out and bought it for my video library!

  4. Visitor [Join Now]
    JustAGuy51 [visitor]

    I do like redbox rentals but occasionally they p*** me off. Why? They like to repackage old movies and showcase them along with new releases. To trick the customer further, they even put up different artwork on the case.

    Next time when you try to rent, make sure you check online that they are the latest release: just google the title. This repackage-with-different-face thing has caught me like 3-4 times already for movies that I already watched. And they don’t show the year a particular movie is released either.

    Lamers! I happen to get tricked just now. I wish somebody take this issue straight up to Mitch Lowe’s a** and shove it up. Maybe follow up with a lawsuit or two to redbox.

    • Administrator
      Michael [administrator]

      Just check the Movies section here on Inside Redbox first. We show the original year of release for all of the movies, so that should help you a bit.

      We’ve got your back, Guy!

    • Visitor [Join Now]
      The Turnip [visitor]

      What are some examples? I often see artwork change on older movies. I certainly don’t believe Wal-Mart, for example, is the company creating the artwork on the DVDs they sell. More likely, it’s the studio.

    • Visitor [Join Now]
      Carson [visitor]

      But the Quick and the Dead is badass and worth watching again.

  5. Member [Join Now]

    I hate it