Warner Bros. Throws DVD Rental Gauntlet Down At Redbox—And Netflix

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Warner Bros. Throws DVD Rental Gauntlet Down At Redbox—And Netflix

The battle between the movie studios and new movie rental services (like Redbox and Netflix—but not Blockbuster) is quickly evolving into a full-blown war. Warner Bros. has joined Universal and Fox in trying to keep movies out of Redbox kiosks until about a month after their release date—but it doesn’t stop there.

The studio is also renegotiating its deal terms with Netflix (NSDQ: NFLX) with the goal of imposing the same new release delay; that’s in addition to banning DVD wholesalers from selling to either kiosk or mail-order rental companies directly (per Video Business).

Redbox will most likely respond to Warner Bros.’ new terms with a lawsuit, like it has just done with Fox. More interesting will be how Netflix handles the news.

The company has been riding high on a steady flow of new subscribers, and during its Q2 earnings call, CEO Reed Hastings explained how important new releases were to the bottom line. If Netflix agrees to Warner Bros.’ release window delay, then other studios will likely follow suit—and that could ultimately mean lost revenues.

The one company that doesn’t seem too perturbed by Warner Bros.’ shift is Blockbuster (NYSE: BBI). Even though the new deal terms would impact Blockbuster’s own kiosk business (still in its infancy), during the company’s earnings call, CEO Jim Keyes said the 28-day delay “represents a competitive opportunity”—since the delays wouldn’t apply to rentals in stores.

Blockbuster’s overall sales slumped by 22 percent in Q2, while same-store sales dropped by nearly 18 percent year-over-year, so the company needs (and clearly will take) whatever competitive advantage it can get over its kiosk and mail-order rivals.

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Tameka Kee

@GeekyChic Aug 13, 2009 8:15 PM ET

Photo: Paulina Sergeeva

Posted In: Entertainment, Movies, DVD, netflix, redbox, warner bros

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Debbie

The reason Blockbuster is standing behind the studios is so they can put those titles in their stores and then supply their Blockbuster Express kiosks (because they are taking delivery to the stores) which then gives them the upper hand in having these studios movies into their kiosks the day of the release, unlike the rest of the kiosks which need to wait for the DVD to be released at the store, purchase it (with huge buying volume restrictions), and then place into the kiosk. They are looking for the upper hand at all cost.

I’m canceling my Netflix after sending back my movies tomorrow. WB: do you know what T-O-R-R-E-N-T spells? It spells: “The Future”

Are they going to be surprised with piracy goes up 30% and their revenue falls instead of increases? Putting the screws to customers always backfires in media. When are they going to learn that they need to innovate new revenue models instead of clinging to old ones that no longer work?

Jack

This is literally the dumbest move the studios have done since the BD/HD-DVD format war. At this point, they're pushing more and more people toward piracy and it's going to bite them in the ass in the long run.

And as for Blockbuster, gee, I wonder why they would be behind the studios on this one? Maybe it has something to do with their 37 million dollar net loss this quarter as Netflix and Redbox soars? Idiots

asim

DVDs and rentals represent roughly 50% of the revenue for the studios. The brick & mortar wholesalers and DVD rental companies (excluding NetFlix) typically share 60-70% of the revenue with the studios. As the average rent for a Redbox rental is roughly $1, which is significantly lower than the $3-5 revenue/rent from Blockbuster, studios had a strong incentive to take this action. They had waited until now because, only now the threat of cannibalization is a material one.