Redbox, CinemaNow test download partnership

DIGITAL: Kiosk leader improves workaround efforts, parent's CEO says

By Danny King -- Video Business, 11/10/2009

NOV. 10 | DIGITAL: Redbox is testing a program that gives frequent customers vouchers that let them download titles from Sonic Solutions’ Roxio CinemaNow service, marking an attempt by the largest U.S. movie-rental kiosk operator to more closely gauge digital-delivery demand. Redbox also has improved its efficiency in getting titles on street date from studios with delayed release windows to kiosk operators, its parent company’s CEO said earlier today.

Redbox is giving customers who buy certain prepaid DVD-rental packages gift cards that can be used to redeem titles on CinemaNow, according to company spokesman Christopher Goodrich. Redbox started testing the program on Oct. 29.

The test marks an early step in what could be Redbox’s effort to either further develop a digital-delivery business or acquire a company that specializes in the service, said Paul Davis, CEO of Redbox parent Coinstar, at the Merriman Curhan Ford Sixth Annual Investor Summit in New York today. NCR, which has licensed the Blockbuster name to compete with Redbox by building as many as 10,000 Blockbuster Express kiosks by mid-2010, will begin testing digital movie rental kiosks via downloads to SD cards in a half-dozen Blockbuster and Hollywood Video stores with MOD Systems this week.

“We think this is a space that we should be testing in and understand better,” said Davis, who declined to say how widespread the test with CinemaNow was. “It’s an interesting space that we’d like to explore.”

Redbox has led growth in the U.S. kiosk industry, which is expected to expand over the next few years as video store chains such as Blockbuster and Movie Gallery close underperforming stores. Coinstar said last week that Redbox’s third-quarter sales surged 90% from a year earlier by adding 2,700 kiosks and boosting sales per machine by more than 25% from a year earlier. Davis said today that Redbox has a “strong pipeline” of orders from retailers for more kiosks next year.

Such rapid growth has caused studios including Universal Studios Home Entertainment, Warner Home Video and 20th Century Fox Home Entertainment to take issue with Redbox’s $1 a night DVD rentals and prohibit the sale of their new DVD releases to kiosk operators until at least four weeks after street date. Redbox, which sued Universal last year, filed similar claims against Fox and Warner in August and by the end of last month, secured so-called “workaround” agreements to get some street-date titles from those studios in its machines.

The company, which has more than 20,000 kiosks, also has improved its efficiency at getting street-date titles from Universal, Warner and Fox, which all have enacted a delayed release window for kiosks, Davis said today.

The workaround process “tends to be a core competency that we’ve developed over the past nine to 10 months,” said Davis, adding that the company hasn’t needed additional staff to stock machines with Fox and Warner titles. “We’re well covered across the country.”