Redbox Flexes Its Muscles As It Prepares For More Battles

UPDATE: Redbox To Unveil Streaming Plan As It Raises DVD Rentals To $1.20 A Night

There was an underlying message in Redbox parent Coinstar's presentation to analysts yesterday following its 3Q earnings report: Warner Bros, Universal, and Fox had better not double the delay period for providing DVDs to Redbox.Despite his easy-going speaking style, CEO Paul Davis firmly indicated that such a strategy - increasing the window for those studios to as much as 60 days from the current 28 –would lead to corporate warfareand probably backfire. It would help Paramount, Sony, and Lionsgate, whichrecently extended their agreements to supply DVDs to Redbox the same day that they're available elsewhere. (Disney also provides discs on opening day to Redbox.) What's more, Redbox execs say that they can buy DVDs from other sources instead of securing them directly from the studios. "The great thing about the United States is that the first-sale doctrine gives you opportunity for workarounds, and we evaluate that … to protect the windows we enjoy today," Davis says.

Coinstar executives say that they want a win-win solution - that studios have something to gain by helping Redbox. The company illustrated that with its new agreement to give Paramount 100,000 Coinstar shares for extending its day-and-date deal, with an option for 100,000 more if the studio takes it two years beyond 2014. They also subtly reminded studios that they'llneed Redbox if they decide to milk DVDs as long as they can while waiting for consumers to warm to cable and Internet VOD services. Coinstar noted that it recently became the leading renter of DVDs in the wake of Netflix's blundering decisionto raise subscription prices by 60% for people who want to to rent discs as well as digital streams.

Coinstar has a lot riding on its ability to defuse the potential new threat: Its shares fell 7% today due in part to the spreading belief that Warner Bros, Universal and Fox might attack kiosk DVD rentals.Their concern is that Redbox's $1-a-night (soon to be $1.20) rentals are too cheap: Why would price-conscious consumers in a tough economy pay several dollars to access a movie from VOD when they can take home attractive movies for less from a kiosk at the local supermarket or drug store? The current 28-day window for Redbox "is simply not long-enough to shift consumers fast enough" to the pricier options, BTIG analyst Rich Greenfield says . But there'llbe no room for compromise if studios decide they have to make consumers pay more to be entertained. Coinstar executives need only look at Reed Hastings at Netflix to see what happens when companies known for delivering value decide to abandon that course.

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