Redbox files suit against Fox

PHYSICAL: UPDATE--Kiosk operator protests 30-day vending window

By Samantha Clark and Marcy Magiera -- Video Business, 8/12/2009

AUG. 12 | PHYSICAL: Redbox has filed a federal antitrust suit against 20th Century Fox because of the studio’s new distribution terms, which would prohibit wholesalers from selling Fox DVDs to the rental kiosk channel until at least 30 days after their initial street date.

The action is “all about our customer choice,” Redbox president Mitch Lowe told VB. “We were forced between two choices. One was to delay the release [of Fox DVDs] by 30 days and essentially put our customers behind Blockbuster customers.” The other choice was to raise prices above Redbox’s current $1 per night DVD rental fee, Lowe said.

The suit, filed Aug. 11 in U.S. District Court in Delaware, charges the studio with copyright misuse, antritrust violations and tortious interference with contractual/business relationships in regard to Redbox’s relationships with wholesalers VPD and Ingram. Redbox is seeking injunctive relief and unspecified monetary damages.

In the action, Redbox alleges that “Fox’s attempt to choke off Redbox’s supply of new release DVDs follows a failed attempt to require Redbox to end its ‘dollar-a-night’ pricing and to force Redbox to substantially raise its prices to consumers. Redbox refused, and Fox’s boycott followed.”

Fox has directed wholesalers to not sell its new release titles to any vending operator until 30 days after street date beginning with the Oct. 27 release of its $151 million-grossing Ice Age: Dawn of the Dinosaurs.

In a statement, Fox said, “Our desire is to maintain for Fox movies a thriving network of distribution serving all types of consumer preferences, on reasonable business terms for Fox as well as our distribution partners. Fox spent several weeks trying to negotiate a deal with Redbox that offered Redbox varying terms that gave Redbox the option of purchasing DVDs either on the initial DVD release date or with a 30-day window. Unfortunately, Fox and Redbox could not reach agreement. Redbox has now filed a lawsuit challenging Fox’s ability to make business decisions that Fox believes are in its best interest as well as those of consumers. This lawsuit aims to limit Fox’s ability to make legitimate business decisions, and Fox believes it will prevail in defeating Redbox’s meritless claims.”

Redbox filed a similar lawsuit against Universal Studios Home Entertainment in October after the studio attempted to create a “vending rental window” 45 days after a DVD’s general street date. A decision in that case is pending.

Since the rift with Universal, Redbox has “developed very creative ways to acquire product” released by Universal and will use similar tactics to continue stocking Fox titles, Lowe said. Redbox is protected by the “first sale” doctrine of federal copyright law, which allows a retailer to distribute as it sees fit any legally purchased DVD.

Meanwhile, other studios are embracing Redbox’s kiosks. The business segment was largely responsible for an 8.3% growth in consumer spending on movie rentals in the first half of the year, according to Rentrak, while DVD sales fell more than 15%.

Lionsgate yesterday announced a five-year deal with Redbox, which would give the studio about 7.4% market share inside Redbox kiosks and could generate as much as $200 million in sales for the studio.

This follows a similar deal between Redbox and Sony Pictures Home Entertainment, who signed last month to give that studio a roughly 20% market share of Redbox kiosks expected to return about $460 million to Sony over the next five years.

Both agreements have limits on used-DVD sales, which the studios believe hurt sales of new DVDs. Redbox also has an agreement with Walt Disney Studios Home Entertainment that limits used-DVD sales.

A “minimum” number of Redbox kiosk sell used discs, Lowe said. The retailer does sell used discs back to VPD and Ingram, which then resell them. But Redbox does not sell used DVDs from any studios with which it has direct distribution agreements, Lowe said, noting that is a key incentive for studios to do such deals.

Additional reporting by Susanne Ault