Redbox vs. Old Hollywood: who's going to win this time?

Redbox, the bright red kiosks 17,000 strong around the country that rent new and old releases for a mere buck a day, have long been the bain of studio releases. Whereas studios get a portion of rentals from Blockbuster and Netflix, Redbox offers no such deal, forking over only the cost of the rental DVD. As a result, they can keep their rental prices low.

While DVD sales are expected to fall by 850 million this year to $12.9 billion, the portion of that slated by kiosk sales is expected to grow by about $125 million to $415.3 million. Many studios are realizing that while it's a disagreeable model, it's a model they can't ignore, and when sales are this low, they need to take what they can get. (Does this sound familiar at movies?) While DVD sales continue to plummet, many studios, including Disney, Lionsgate, and Sony, are biting; quietly cutting deals with Redbox, and hoping to collect a meager, but immediate, profit of a DVD sale.

But not everyone is happy with the lowered profits. Universal Pictures tried to ban Redbox from including its films, and Redbox sued. Both sides are awaiting judgment from a Delaware judge. Clearly studios would rather sell DVDs then have them rented, but Redbox claims that its customers buy DVDs after renting them at the same rate as Blockbuster and Netflix. Studios claim that people are buying fewer DVDs because they can rent them at a Redbox.

In reality, a Redbox pickup and drop-off is no more convenient than a Blockbuster or a Netflix plan by mail. And if you watch enough movies through these subscriptions, your rate-per-film could easily be a dollar or less. Blockbuster, covetous of the low real estate prices of these kiosks, have even begun to roll out its own dollar a night kiosks.

The Universal agreement, which demands Redbox wait 45 days after a DVD release before renting it out as well as 40% of gross rental revenues, represents yet another case of old Hollywood attempting to squash Hollywood innovation.

Clearly, it's fair for Redbox to start paying royalties to studios. But the two sides are never going to come to an agreement if studios like Universal stick to their guns about old revenue models. Just like brainstorming on the dilemma of making profits from online films, studios need to start filling their payroll with people who understand new media and new entertainment models, and can come up with innovative ways to make both sides happy. Until they do, they'll be missing out on easy revenue that most studios have realized that they can't do without.

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