Paramount signs trial deal with Redbox
PHYSICAL: Studio will give kiosks DVDs through end of year in exchange for rental data
By Marcy Magiera -- Video Business, 8/25/2009
AUG. 25 | PHYSICAL: It’s official: Tally four studios for Redbox, three against, at least for now, with Paramount signing what could be the richest deal yet with the $1 per night kiosk operator.
Rental data from Redbox kiosks will be given to Paramount as part of the deal.
Redbox signed a trial revenue-sharing deal with Paramount Pictures under which the studio will make its DVD releases available on street date to the kiosk operator through 2009. If the deal sticks, Redbox will pay Paramount about $575 million over the five-year term, with a guaranteed market share of 18.5% for Paramount titles in Redbox kiosks, almost double the 10% share the studio has in the overall rental market, according to Rentrak. The deal potentially reps 25% more revenue than Redbox’s biggest contract to date—a $460 million, five-year pact that gives Sony 19.9% share in Redbox kiosks.
Paramount will receive detailed rental data from Redbox, which it will use, in conjunction with sales data on its DVDs, to evaluate the total packaged media profit picture before deciding whether to continue with Redbox.
Paramount has the right to extend the deal through 2014, with an out clause after two years, according to a Coinstar filing with the SEC.
“We’re in a unique position,” Paramount Pictures vice chairman Rob Moore said, pointing to the caliber of product the studio has coming to DVD in the fourth quarter, including Transformers: Revenge of the Fallen, Star Trek and G.I. Joe. Those titles, plus Paramount’s track record of delivering tentpoles, gave it the leverage to negotiate a deal where it doesn’t have to commit to Redbox initially but has the option for a longer, and highly lucrative deal, he said.
The output deal covers all Paramount titles, including live-action films from DreamWorks, but not titles from DreamWorks Animation, Moore said.
As part of the deal, Redbox also will destroy used rental inventory, rather than redistributing it for eventual sale to consumers.
Cheap used DVD are a huge sticking point with the studios because they compete with new DVD sales. Some studios also believe that the $1-per-night rentals provided by kiosks cannibalize new DVD sales, leading to a movement by some studios to institute a later window on kiosk rentals.
“This agreement is a positive step with Paramount,” Redbox president Mitch Lowe said. “The agreement ensures that our customers will have increased access to some of the biggest titles of the year.”
Sony Pictures Home Entertainment and Lionsgate recently signed deals to distribute titles directly to Redbox. Walt Disney Studios Home Entertainment also provides its titles to the kiosk operator.
Warner Home Video, 20th Century Fox Home Entertainment and Universal Studios Home Entertainment are all trying to impose a delayed window of 30 days or more on kiosk rentals and are being sued by Redbox.
Between Sony, Paramount, Lionsgate and Disney, Redbox has street-date agreements with studios that accounted for about 40% of the U.S. DVD rental market during the first half of the year, according to Rentrak. Warner, Fox and Universal together also account for about 40% of the rental market.
Earlier this month, Coinstar said Redbox more than doubled its second-quarter revenue from a year earlier after almost doubling its number of kiosks to almost 18,000 and boosting sales per machine by 33%.
Kiosks will account for almost 30% of DVDs rented within the next year, up from 19% for the first half of this year, NPD Group said in a new report released this week. Blockbuster and other video rental stores make up 45% of the DVDs rented, and subscription services, led by Netflix, have a 36% share, NPD said.
In the first half of the year, U.S. consumer spending on DVD and Blu-ray rentals rose 8.3%, according to Rentrak, largely due to kiosks, while disc sales fell 13.5%.
Danny King contributed.
