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Time Warner CEO: Signs of Hope for DVD

"Buy more DVDs, Please."

"Buy more DVDs, please."

Just like in the job market and the economy at large, “Things don’t suck quite as much as they used to,” is apparently what passes for good news in the entertainment industry these days. Echoing upbeat comments he made last month, Time Warner CEO Jeff Bewkes recently stated that the decline in DVD sell-through rates is slowing, and that there are signs of hope in the home entertainment market. Bewkes made the following  comment during an investor summit in New York:

“DVD trends are not declining as fast as they were last year. . . I think some of that was the pressure of the economic contraction.”

Bewkes also said that the home entertainment industry is at least partially being sustained by Blu-ray disc sales and electronic sell-through and rentals.

Never one to pass up an opportunity to bash Redbox, Bewkes leavened his optimistic comments by expressing concern about $1 per night DVD rentals and their effect on the market. According to Home Media Magazine, Bewkes said that his company would “support the business models that have appropriate margins and not those that don’t”. The Time Warner CEO continued:

“There is certainly a place for [kiosks],” Bewkes said. “[But] there’s a question … where they should be in the temporal chain of distribution.”

It’s interesting to note that Bewkes’ comment about “pressure of economic contraction” is exactly what Redbox CEO Mitch Lowe said on the subject a month ago. Let us know what you think about Bewkes’ opinion on the DVD market—including Redbox—in the comments.

[via Home Media Magazine]

18 Responses to “Time Warner CEO: Signs of Hope for DVD”

  1. Visitor [Join Now]
    FesteAinoriba [visitor]

    Pewkes said TimeWarner should “Support the business models that appropriate margins and not those that don’t.”

    What is that supposed to mean? Margin is calculated by (Total Revenue-Cost of producing Revenue)/Total Revenue.
    The cost of producing revenue is the cost of running the the business and includes overhead, sales staff, inventory costs, facilities, etc…
    Thus, margin is basically you net profit divided by gross revenues.

    Redbox’s margin for 2008 was a paltry 1.55%; for the last reported quarter in 2009, it increased to a projected 2.22%. Is that too high for Pewkes, or is it too low? He can’t be suggesting that it is too high, can he. Afterall, TimeWarner’s company reported a 9.29% margin. If redbox’s margin of 2.22% is too high, then by his own lying logic, Time Warner’s must be WAAYY TOOO HIGH!

    What he is really saying is that the studios don’t like the fact that their retail affiliates in the DVD rental business have been reporting NEGATIVE margins: e.g., Blockbuster reported a -8.34% margin last quarter (meaning that they their cost of operation is more than their total sales).

    Margin, for those who lack a business background, is a measure of the efficiency of the business. You can increase margin by increasing sales faster than you increase total cost of operations OR you can increase margin by reducing the total cost of operations and holding sales constant (or increase them is even better).

    By Pewkes and his studio cronies have been demanding redbox to increase their retail price point to something higher than $1.00 – $2? $3? But what would that do to redbox’s Margin? Simply increasing the price to $2.00 for the first night doesn’t increase their operating costs at all. ASSUMING that they still rented as many movies, their Margin would therefore double to 4.44%. Is that what he means by more appropriate margin?

    If it is, then are they going to stop supporting Blockbuster for its unacceptably low (negative) margins?

    I hope this helps show that Pewkes statement about “appropriate margins” is utter nonsense – what they don’t like is the fact that their rental affiliates (like Blockbuster) are too inefficient to compete with the technology-enabled business model employed by redbox – and they are losing retail market share as a result. Pewkes is being dishonest in characterizing the issue because he knows that he can’t very well say, we don’t like the fact that redbox is beating us in the market, even though we’ve tipped it in our favor by subsidizing wholesale cost for our retail affiliates.

  2. Visitor [Join Now]
    rb [visitor]

    Don’t know about dvd sales, BUT there’s an article in today’s newspaper by box-office analyst Paul Dergarabedian that movie ticket sales are to top $10 billion for the first time !!! …and this isn’t even including the potential Christmas blockbusters for the final couple weeks of 2009. Previous record set was $9.6 billion set in 2007. This said, if there are soooooooooo many people going to the movies, and IF these movies they saw were quality movies, why then aren’t these consumers buying the dvds of these movies? How can the studios continue to put blame on Redbox and it’s $1 rental. Seems if these people who saw the movies at the theater JUDGED the movie to be a quality movie and worth buying as a dvd, they would! Shouldn’t the fact that movie ticket sales are up BUT dvd sales down lend credence to the theory that what keeps people from buying dvds is primarily once they actually see the movie they judge for themselves it’s not worth buying because it’s a crappy movie! …. This proves true whether they saw the movie at the theater or whether they rent the dvd at Redbox, BB, etc. Studios need to take blame for decrease in dvd sales by putting out crappy movies not worth owning.

    • Visitor [Join Now]
      John Small [visitor]

      Rentals are up, Sales are down.

      Price ratio between a BB rental and a purchase: approx. 4:1

      Price ratio between a Redbox rental and a purchase approx 16:1

      When rental price to sales ratios are smaller, sales increase.

      When rental price to sales ratios get too high, sales decrease.

      This is the logic that the studios are using. Is it legit? Some of the studios certainly seem to think so.

      • Visitor [Join Now]
        RunninWild [visitor]


        I’d like to know your answer to this.

        If redbox never existed (don’t get too excited…LOL), do you think Blockbuster, Netflix and other Brick and Morters would be seeing the uptick in rentals that redbox is seeing now?

        • Visitor [Join Now]
          John Small [visitor]

          Again, I am not anti-Redbox. I do not wish for them not to exist. I only want them to have a reasonable business model that uses real, not fake numbers.

          And yes, if Redbox did not exist, a certain portion of the uptick would migrate to other businesses.

          People want to watch movies. They will mitigate that watching through a combination of price and convenience (location).

      • Visitor [Join Now]
        FesteAinoriba [visitor]

        Let’s assume that what you say here is true for the moment (though I think the logic is arguable – viz., I still buy the DVD’s that I want in my library, no matter how much I might be able to rent them for – even at 4:1, why would I want to pay four times the price if I’m only going to watch it once?)

        Anyway, if the condition you outlined were true, Would that give studios a legal right to tell retailers that they can’t rent the DVD’s they’ve purchased, or if they do, to set a minimum rental cost?

        Corollary question 1: In your opinion, would it give the studio a legal justification to force retailers who are going to rent the product to pay a higher purchase price than it gives to those who are going to sell it (in order to control the rental/sale price ration)?

        Corollary question 2: in your opinion, would that legally justify the studios to sell only to retailers that sell the DVDs for a period of time, and then only later provide the DVDs to retailers who rent them?

        Final Questions: In your opinion, What is the nature of the legal restraint placed on the studios by the U.S. Supreme Court that is commonly called “The First Sale Doctrine”? Namely, does the First Sale Doctrine allow the studios to discriminate against a retailer on either giving access to wholesale pricing or timing based on whether or not the retailer is going to sell vs. rent the DVD?

        • Visitor [Join Now]
          John Small [visitor]

          >Anyway, if the condition you outlined were true, Would that give >studios a legal right to tell retailers that they can’t rent the DVD’s >they’ve purchased, or if they do, to set a minimum rental cost?

          I support the First Sale Doctrine. The studios have not told anyone that they must charge a certain price.

          >Corollary question 1: In your opinion, would it give the studio a legal >justification to force retailers who are going to rent the product to >pay a higher purchase price than it gives to those who are going to >sell it (in order to control the rental/sale price ration)?

          Again, this is not happening. The studios are not doing this. The studios cannot do this.

          >Corollary question 2: in your opinion, would that legally justify the >studios to sell only to retailers that sell the DVDs for a period of time, >and then only later provide the DVDs to retailers who rent them?

          Again, this is not happening. The studios are not and cannot do this. First Sale Doctrine takes precedent.

          >Final Questions: In your opinion, What is the nature of the legal >restraint placed on the studios by the U.S. Supreme Court that is >commonly called “The First Sale Doctrine”? Namely, does the First >Sale Doctrine allow the studios to discriminate against a retailer on >either giving access to wholesale pricing or timing based on whether >or not the retailer is going to sell vs. rent the DVD?

          As long as retailers have reasonable access to the product (either through retail or wholesale channels), everything is fine. That is the current situation in the USA. Redbox has access to all the titles they want, just not at the price they want or in the manner that they want. The problem in on the Redbox end.

          There is no discrimination. If Redbox had agreed to pay a reasonable amount for their product, this situation would not have arisen.

          For a similar situation, look at the recently ended conflict between Cosctco and Coke. Coke was under no obligation to supply Costco with product at a price that Costco demanded.

          • Visitor [Join Now]
            FesteAinoriba [visitor]

            If you believe what you’ve said John, then you might want to pay closer attention to the actions the studios took and continue to take against Redbox and their own explanation of why they are doing it. The studios are explicitly talking about delaying DVD releases to kiosk businesses for varying amounts of time. They have explicitly cited Redbox’s low rental fees as the “problem” and said that it “UNDERVALUES” their product and “UNDERMINES” retail sales. Go read virtually any news story on the studio/redbox fight and you’ll discover, if you are honest, that the studios are contemplating all of these strategies and are already doing some of them.

            Your Costco/Coke analogy has no relevance to the studio/redbox dispute. Coke doesn’t ask for revenue sharing from costco or from other vendors. Their negotiations were entirely over volume wholesale pricing with Costco using its clout as a volume buyer against Coke’s clout as a desired commodity. It is the linking of revenue sharing partnerships AND discounted wholesale access that is problematic as is CLEARLY evidenced by the restrictions place on AT&T.

            And what, exactly, is a “reasonable” price? Is it reasonable to demand that redbox pay more for the same volume as one of their competitors?
            Must I remind you that the reasonable price for a commodity or service is what the market will bear in a robustly competitive environment…that is it.

            I know, I know – you claim that Redbox could maintain its independent status AND access the same prices its competitors get by agreeing to make the studios its revenue sharing partners. I am at a loss on how to reason with someone with such a strange view of what the term “independent” means. It seems self-evident that if 40% of my revenues are siphoned off by a studio, that the studio is my tacit partner in the rental business. ANY REASONABLE PERSON can clearly see that the studios, via revenue sharing agreements, have established a retail presence in the rental market via agents.

            The best analogy is with regard to AT&T. AT&T owns the network of telecommunication lines that enable telecom services. AT&T has competitors in the retail market in the likes of Sprint and MCI, for example. But AT&T also has their own retail service agents that compete, for retail business, against Sprint and MCI and from which AT&T derives retail revenues. Riddle me this John, would it violate antitrust rules and be anticompetitive should AT&T sell line access at $0.01 per minute to its revenue generating retail service agents while charging $0.10 per minute to MCI and Sprint? Can you not see how easily AT&T, via varying the difference in price it charges its own retail partners vs its retail competitors, would control the retail price point for phone service (always, I’m sure to make sure it was “reasonable” as you say)? Would you argue that this practice is fair: afterall, Sprint and MCI could get the same discounted access rates if they would just bring AT&T in as a revenue sharing partner?

            Of course, we all KNOW that AT&T is barred from giving discounted wholesale access to its revenue generating retail affiliates (at least I think we all know that – you do know that, don’t you John). If such a practice is anticompetitve for AT&T, why won’t you consistently condemn the practice as anticompetitive when the studios DO THE VERY SAME THING?

            I know why the studios are trying to get around first sale restrictions and why they are trying to drive up the rental pricepoint – but I don’t understand why YOU think it is ok for the studios to give better wholesale prices to its revenue generating retail agents than it gives to its independent competition.

            At the same volume, suppose that the studios give DVD’s to its revenue sharing partners at $2.00 each, but charge $70.00 each to all others. Would that tip the market in favor of its revenue generating partners? Even you must agree that this would be anticompetitive. What if it charges $6.00 to its revenue-sharing partners and $30.00 to others? Be honest now John, at what price differential does such a practice lose its anticompetitive character (Hint: there is only a single right answer)? The problem with allowing such a differential here is that it allows the studios to manipulate the difference between the rental cost vs retail cost.

            Your problem, John, is that you have an a priori belief that $1.00/night is not a “reasonable” price point for a renting a new DVD (and the studios agree with you). I don’t know what the fair market price is, but I know that the market will settle to it if the same kind of antitrust restrictions are placed on the Studios that have already be placed on AT&T. That is, that ANY retailer (sales or renters) should have access to the same DVD volume pricing regardless of whether they share revenue with the studios or not.

          • Visitor [Join Now]
            John Small [visitor]

            Redbox is already revenue sharing with several studios Feste.

            Has this prevented them from running their business the way they want to do so?

            In addition, even if the studios wanted to create a kiosk rental window or a sale window before rental, they would be unable to do so because of the First Sale Doctrine.

            Your arguments have no merit because they have no basis in reality.

          • Visitor [Join Now]
            FesteAinoriba [visitor]

            You don’t get it John. The studio’s anticompetitive practices don’t necessarily hurt Redbox, just as they didn’t hurt Blockbuster (in fact they propelled Blockbuster to control huge retail marketshare). Anticompetitive practices HURT THE CONSUMER. Redbox, if forced into revenue sharing partnerships with the studios in order to compete with other retailers that get subsidized pricing can fare just fine; but they will probably be driven to raise prices in order to feed the pig. The collateral benefit for the studios is that it will help close the price gap between renting and buying.

            Aligning yourself with the mob has usually been a good individual survival strategy – it’s just not healthy for the common good.

            John, you keep failing to explain why you think it is not anticompetitive when the studios deeply discount wholesale pricing for its revenue sharing agents in the retail sector; but that it IS anticompetitive for AT&T to do the very same thing.

            Perhaps in “your” reality, it is OK for AT&T to do so too? Which parallel universe did you say that you were from?

          • Visitor [Join Now]
            Feste Ainoriba [visitor]

            oh, and John,

            Your next homework assignment is to look up the term “silent partner” in the dictionary or encyclopedia.

            And your idea that by John Small merely asserting something means it is thereby proven, is really funny and sad.

            Like this gem: ‘Redbox was getting great wholesale pricing. After the studios cut it off Redbox filed a lawsuit. Therefore Redbox’s antitrust suit seeks to get the courts to force the studios to give redbox better wholesale pricing than any of its competitors.’

            This conclusion (which you think is a proof) is formally known as “Post hoc ergo propter hoc” (or literally “after this therefore because of this” logical fallacy.

            To wit: Johnny’s mother made Johnny eat sack lunches everyday while in school. Johnny started abusing drugs in Highschool. Therefore forcing your children to eat sack lunches leads them to drug abuse.

            You’ve made wild assertions that are absurd on the surface (like holding forth that the courts agreed to let an antitrust lawsuit continue based on a plaintiff’s demand for better wholesale prices than anybody else gets), and you have not backed up a single assertion with any credible citation nor source nor independent authority – we are just supposed to accept it on YOUR authority, “John said it so it must be so.”

            You’re nearly a laugh but your really a cry (Pink Floyd).

          • Visitor [Join Now]
            John Small [visitor]

            You literally have no idea what you are talking about Feste. It is really pretty sad.

            You can either get Wholesale pricing or you can get Revenue Sharing.

            Both exist. Both are options for Redbox. In fact, they are getting both.

            There is no anti-competitve anything happening here.

            You are confused as to how it all works. You must be reading too much Marx (and not the Groucho kind).

          • Visitor [Join Now]
            Feste Ainoriba [visitor]

            John, you keep failing to explain why you think it is not anticompetitive when the studios deeply discount wholesale pricing for its revenue sharing agents in the retail sector; but that it IS anticompetitive for AT&T to do the very same thing.

            Why is that John. Are you confused by semantics? Do you think that by calling it “revenue sharing pricing” that it changes the nature of the transaction.

            Reminds me of a story about President Lincoln. He saw a dog with three legs and asked an associate, “How many legs does that dog have?” His associated correctly replied, “three, Mr. President.” Then Lincoln asked him, “well now, if we called his tail a ‘leg’, then how many legs would he have.” Lincoln’s associate tentatively replied, “I suppose then he would have four legs.” Lincoln wisely remarked, “No John, calling the tail a leg doesn’t change its real nature.”

            Likewise, John, calling it “revenue sharing” pricing doesn’t change the real nature of the transaction as a SUBSIDIZED wholesale transaction which the courts HAVE determined is anticompetitive and predatory is other, similar cases.

            Please explain why you think it is OK for the studios to give deeply discounted product pricing for its revenue generating agents in the retail sector, but that AT&T is barred from doing the same predatory practice (the court’s characterization, not mine) for its revenue generating agents in the retail telecom sector?

            Since I “literally have no idea what I’m talking about,” it should be very easy for you to explain why you have this double standard, John.

          • Visitor [Join Now]
            John Small [visitor]

            Feste, you are confused. You think your AT&T example is appropriate but it is not. It is NOT relevant to the discussion. It is not the same argument.

  3. Visitor [Join Now]
    Joe Schmuck [visitor]


    Paramount Home Entertainment and Redbox Extend Trial License Agreement Through June 2010
    Trial License Agreement to Provide Redbox Customers Ongoing Access to Paramount Titles

    Press Release
    Source: Paramount Home Entertainment Inc.; Redbox Automated Retail, LLC
    On 8:45 am EST, Monday December 14, 2009
    Buzz up! 0 Print.Companies:Coinstar Inc.Viacom Inc Cl A

    HOLLYWOOD, Calif., Dec. 14 /PRNewswire/ — Paramount Home Entertainment Inc. (PHE) and Redbox Automated Retail, LLC (redbox), today announced that the companies will continue their relationship through at least June 30, 2010, lengthening the timeframe that Paramount has to extend the agreement through December 2014. This extension to the trial license agreement ensures redbox customers continued access to new release titles from PHE, including such high profile films as Up in the Air and The Lovely Bones.

    Related Quotes
    Symbol Price Change
    CSTR 26.20 +1.50

    {“s” : “cstr,via”,”k” : “c10,l10,p20,t10″,”o” : “”,”j” : “”}
    “We are enjoying our business relationship with redbox and the data from our initial trial period has been encouraging,” said Dennis Maguire, Worldwide President of Paramount Home Entertainment. “We are extending the time period that we have to exercise our option in order to give us more time to assess the long-term potential of this business relationship.”

    Redbox and PHE first signed the trial license agreement in August 2009, with redbox agreeing to provide PHE with PHE rental data to evaluate the potential benefits of a lengthier contract. The extension provides redbox customers with access to new release DVD titles from PHE on the day of release until June 30, 2010. In exchange, redbox agrees to destroy PHE titles once the product is removed from kiosks.

    “The extension marks another positive step forward in our relationship with Paramount Home Entertainment,” said Mitch Lowe, President, redbox. “This agreement provides our customers with access to Paramount titles the day of release at the more than 19,000 redbox locations nationwide and underscores our commitment to working with the industry.”

    If Paramount exercises the option, the agreement with redbox will run through December 2014 and contains an early termination right at PHE’s discretion in December 2011.

    About Paramount Home Entertainment

    Paramount Home Entertainment (PHE) is part of Paramount Pictures Corporation (PPC), a global producer and distributor of filmed entertainment. PPC is a unit of Viacom (NYSE: VIA, VIA.B), a leading content company with prominent and respected film, television and digital entertainment brands. PHE is responsible for the sales, marketing and distribution of home entertainment products on behalf of various parties including: Paramount Pictures, Paramount Vantage, Paramount Classics, Paramount Famous Productions, Nickelodeon, MTV, Comedy Central, CBS and PBS and for providing home entertainment fulfillment services for DreamWorks Animation Home Entertainment.

    About Redbox

    Redbox Automated Retail, LLC, a wholly-owned subsidiary of Coinstar, Inc. (NASDAQ: CSTR), offers new release DVD rentals through its network of conveniently located, self-service kiosks. Redbox has rented more than 500 million DVDs and is available at more than 19,000 locations nationwide, including select McDonald’s restaurants, leading grocery and convenience stores, and Walmart and Walgreens locations in select markets. For more information, visit

    • Visitor [Join Now]
      John Small [visitor]

      Sure enough.

      I suspect Paramount does not see many titles in their sales stream that would be damaged by having low priced rentals. They are likely right.

      I see they gave themselves the chance to back out before the Christmas selling season begins in 2010 though.

      I guess it will all depend on what their numbers are like this season.