Marcy Magiera

Little risk in Redbox?

Another county heard from on the Redbox issue, and this is an interesting one.

Last Wednesday, the same day Fox notified wholesalers that they are not to sell its new releases to kiosk operators until 30 days after the general street date, Mark Cuban wrote on his blog (www.blogmaverick.com) about “The Ultimate Movie Paradox? Redbox vs. Downloads.”

The crux of Cuban’s blog is his idea that if Redbox can offer DVD rentals from kiosks for $1 per movie, online download services ought to be able to offer overnight rental for the same $1.

Along the way, he dishes out some praise for Redbox and some insight into the deals the kiosk service cuts with studios.

First off, Cuban maintains, Redbox succeeds because it is “an incredibly easy way to rent the most popular movies.”

No argument there.

Second, he says, Redbox offers studios a proposition that most other outlets (with the exception of Netflix) don’t: They pay minimum guarantees with no returns and no resale of used DVDs (which is negotiated on a case-by-case basis.) I assume he is in a position to know this.

Even accepting that Redbox can negatively impact DVD sales, Cuban says Redbox is good business (guaranteed revenue, low cost of distribution and marketing) for some studios, particularly on bigger movies.

Cuban: “The brilliance of Redbox is that they reduce the revenue risk and increase the revenue for every title they take. That’s hard for any studio to walk away from.”

Cuban goes on to opine that there’s an opportunity for someone in the online space to operate similarly to Redbox and Netflix, offering the studios payment guarantees on a per-title basis. For this, he says, they could ask for online exclusivity in exchange.

Cuban writes, “In these uncertain times, the certainty of money in the bank versus the absolute uncertainty of selling or renting content on consignment is of incredible value to studios and production companies.”

For me, Cuban’s question raises more questions:

If it’s true that Redbox offers guaranteed, no hassle revenue and that online services still, for the most part, take individual titles on a consignment basis, paying studios only on what they sell, why are studios so split over Redbox? And so united behind online delivery?

Do the studios really believe that if VOD were to start growing at the rate Redbox is, it would have no effect on permanent movie sales?

Is physical rental just too old school to be cool? While any growth in digital looks good to shareholders?

Here’s a guarantee: There will be many more questions before Hollywood comes to a consensus on Redbox.

Posted by Marcy Magiera on August 7, 2009 | Comments (1)