Redbox signs distribution deal with Lionsgate

PHYSICAL: Studio to get 7.4% market share in kiosks

By Marcy Magiera -- Video Business, 8/11/2009

AUG. 11 | PHYSICAL: Chalk up one more studio for Redbox.

Lionsgate has signed a five-year, estimated $158 million deal to distribute its DVDs to the kiosk operator on their initial street date, according to an SEC filing by Redbox parent Coinstar. The output deal, which runs through August 2014, guarantees Lionsgate an approximatedly 7.4% market share in Redbox kiosks and may generate as much as $200 million in sales for Lionsgate over the next five years, the company said today.

Lionsgate has the option of terminating the deal in 2011.

The deal is similar to one struck between Redbox and Sony Pictures Home Entertainment last month, which is expected to return $460 million to the larger Sony division over five years. It gives Sony a roughly 20% market share in Redbox kiosks, which is about 50% above its general U.S. rental market share. The Sony deal also limits the sale of used DVDs.

The agreement, which includes Blu-ray discs, prohibits Redbox from reselling Lionsgate titles into the used-disc market. Disney also sells its DVDs to Redbox with provisions to limit the sales of used DVDs.

"When you're looking at this, you either see an opportunity or a challenge," said Steve Beeks, president of Lionsgate, in an interview today. "We happen to believe Redbox can expand the rental part of the business without a net negative impact on sell-through."

“The multi-year agreement with Lionsgate underscores our commitment to creating winning relationships for our customers and studio partners,” Redbox president Mitch Lowe said in a statement.   

Not all studios are willing to work with the $1 per night rental kiosk operator, however.

Redbox and Universal Studios Home Entertainment are engaged in an ongoing anti-trust lawsuit brought by Redbox after Universal allegedly insisted on a revenue-sharing agreement with the kiosk operator that, among other things, would create a vending window 45 days after the initial DVD release and restricts sales of used discs.

20th Century Fox Home Entertainment also said last week that it will impose a 30-day delay on the availability of its titles to Redbox kiosks.

Studios have grappled with how to deal with Redbox, one of the only growing retailers of packaged media, because of its low-priced rentals and the large amount of used discs it generates that end up being sold to consumers, both of which many execs believe cannibalize sales of new DVDs.

Kiosks are driving growth in the rental industry, however, with revenue from kiosk rentals up more than 150% in the first half of the year, according to Rentrak. Overall rental revenue, including online and bricks-and-mortar retailers, grew 8% in the first half. DVD sell-through, by comparison, was off more than 15%.

Additional reporting by Danny King