Can’t Say We Saw It Coming: Redbox Re-Ups Universal Deal With 28-Day Window

Yesterday, we suggested that video-rental chain Redbox might have to cave on its demand for 28-day release window with Universal, and wind up settling for a window that is twice as long. Well, that’s not the way it turned out. Today, the two sides reached a deal that lets Redbox continue distributing the studio’s DVD and Blu-ray titles 28 days after they premiere on disc through 2014. The deal has broader implications for competitors including Netflix (NSDQ: NFLX), which agreed last month to an extended 56-day release window with Warner Bros.
Eager to steer consumers away from lower-margin rental transactions and back to movie purchasing, Warner has been the most aggressive studio in pushing rental outlets like Netflix and Redbox to accept release delays. The studio was successful in getting Netflix to double its 28-day delay in January, but Redbox resisted a similar demand. Cut off from Warner’s special rental pricing since Feb. 1, the kiosk chain has been buying Warner new-release titles through consumer retail channels, making them available for rent one to two weeks after their disc premiere.
Speaking to an investor conference in San Francisco earlier this week, Paul Davis, CEO of Redbox parent company Coinstar, said the company was satisfied with this work-around — paying top dollar at retail for Warner titles has increased costs, he said, but Redbox has enjoyed higher customer uptake of Warner titles by offering them earlier in the release window.
In a note to investors the same day, Wedbush Securities analyst Michael Pachter expressed doubts that Redbox could ply its buy-it-retail strategy across multiple suppliers. He suggested the chain would either give in to extended windows with Universal when Redbox’s current contract with the studio expires next month — or it would have to cave to Fox (NSDQ: NWS) when that deal times out next year.
As it turned out, however, Redbox is no Netflix, which has publicly indicated its unwillingness to further promote and grow its DVD and Blu-ray rental business.
Disc rentals remain a booming business for Redbox, which just signed on to be the physical packaged media component to a Netflix-like video business being jointly launched with Verizon. Redbox just enjoyed fourth-quarter revenue increases of 40 percent to $445.6 million, driven by the installation of new kiosk outlets, and reflecting an increasing market share of an overall home entertainment business that remains in decline. With that comes some leverage in studio negotiations, apparently.
Other possible points of leverage for Redbox: The chain, out of courtesy, had been delaying the rental release of Warner titles like A Very Harold and Kumar Christmas for several weeks after street date. However, it has been threatening Warner with the prospect of no delay at all.