On Thursday, Redbox’s parent company, Coinstar, reported a 34 percent uptick in revenue to $568.2 million during the first quarter, driven by 39 percent earnings growth of Redbox to $502.9 million.

In January, Netflix CEO Reed Hastings said his company would no longer invest resources into growing its DVD operation. The result of that posture may have emerged just three months later. On Monday, during its own first-quarter earnings report, Netflix revealed that it had lost over 1 million DVD/Blu-ray subscribers in the quarter and that disc-rental revenue had gone from accounting for 52.4 percent of total earnings in Q4 to just 45.4 percent in Q1.

Redbox, however, seems to have become the beneficiary of Netflix’s strategic moves regarding DVD/Blu-ray dating back to July, when Los Gatos, Calif.-based Netflix controversially upped prices on online disc rentals.

In an Oct. 12 research note reported on by Home Media Retailing, for example, Michael J. Olson, senior research analyst with Piper Jaffray, noted that web traffic to Redbox.com was up 46 percent year over year during September, when the price change took effect.

“Search trend data from Google supports a dramatic uptick in web activity surrounding Redbox as consumers look at alternatives to replace or supplement new-release movies from Netflix,” Olson wrote.

The Sunnyvale, Calif.-based company has vowed to keep on fighting, even though a Santa Clara, Calif. Superior Court judge refused to stay a permanent injunction on Kaleidescape’s DVD storage system. Kaleidescape makes home server systems designed to store and play back libraries worth of movies. Since 2004, the Hollywood studio-backed DVD Copyright Control Association has been fighting the company in court, claiming the servers illegally breach DVD copyright and licensing agreements when they swap digital content from disc to server.

Of course, physical media might be dead by the time they settle this thing. Kaleidescape spokesman Linus Wong told paidContent Tuesday that the company fully expected Judge William Monahan’s decision to uphold the injunction, which takes effect April 8. Asking for the stay, he said, frees Kaleidescape to petition the Court of Appeal immediately.

“Regardless of the outcome, we will continue to sell Kaleidescape Systems,” Wong said. “The injunction would stop Kaleidescape from manufacturing and selling systems that play back DVDs from hard disk, but it has no bearing on the system for Blu-ray Discs and CDs. We will continue to develop innovative and exciting products that provide a premier movie viewing experience for the home.”

It’s worth noting that Kaleidescape won the first trial in the case, only to have the appeals court send the proceedings back to a second superior court trial three years ago.

On a panel called “Content Industries in Digital Transformation,” Attaway was speaking for himself and others: moderator and AAP president and CEO Tom Allen, Business Software Alliance’s Robert Holleyman and Recording Industry Association of America’s Cary Sherman, all of whom grappled over whether legislation or collaborative approaches are the correct response to piracy.

“Among my friends in Congress, there is some alarm about what happened [surrounding SOPA and PIPA],” said Allen, who was previously a Maine congressman. “The woman who replaced me in the first district of Maine got 800 e-mails in two days, every one of them opposed to the bills. How in this environment can our respective industries do more to defend the principles of copyright when we’re confronting this wave of the public that goes every day to the Internet and downloads and reads all sorts of stuff for free?”

In general, panelists came down on the side of collaboration — though not necessarily collaboration with the consumer.

SOPA/Pipa Protests: A “Digital Tsunami”

“Right doesn’t always prevail,” Attaway said of SOPA and PIPA. “This time, it didn’t, because our opponents were able to energize a grassroots response. In my view, and I think all of us would agree, [the protest against SOPA and PIPA was spread] primarily through disinformation and spinning their interest in a way that captured the attention of a number of consumers.”

He added “we’ve been rather successful in negotiating with ISPs and other best practices that help protect our content on [user-generated content] sites….I’m very optimistic about our future.”

The Business Software Alliance, however, did not support SOPA or PIPA. “There was a tremendous amount of opposition and we can discuss how it was or wasn’t generated,” Holleyman said. “Shared responsibility and working with other industries is going to be the best, and maybe the only, solution we have, at least for the next several years. I hope we can build a climate where the rhetoric can be lower.”

The RIAA’s Sherman hopes further copyright discussions will be more “rational” than the debate over SOPA and PIPA. “The digital tsunami we encountered with SOPA and PIPA — we’re not going to get the same kind of engagement when we talk about statutory damages or open works,” he said. “We’ll have the opportunity for a more rational discussion. At the same time, I think we actually need to engage. We have criticized the other side for just saying no. We have an enormous piracy problem, and any solution we propose, they just say no. We [also] need to engage and not just say no.”

No, You Can’t Do Whatever You Want With That Movie

The music industry’s Copyright Alert program, which addresses piracy on P2P networks, will begin operation in the second quarter of the year, by July at the earliest, Sherman said. The software crawls P2P sites for pirated content, then works with ISPs to send notices to subscribers alerting them that they’ve been identified as possible copyright infringers.

“This is a concrete example of where we could go, and we would love to be following in your footsteps,” said the AAP’s Allen.

“Education is key,” Attaway said. “It is absolutely ridiculous that a movie that cost $100 million to create, a copy of which you paid $20 for, to say that you own that movie and should make any number of copies you want to. The intellectual base of the Copyleft is pretty flimsy, and we need to do a better job of pointing that out to the public. We need to do it from a grassroots base of the millions of people whose livelihoods depend on copyright protection. [Paying $20 for a movie] doesn’t mean you have the right to make all the copies you want and share them with all of your friends.”

HBO’s exclusive deals with Fox and Universal restrict access to the studios’ films from digital distribution once they enter the pay TV window, which generally comes six months after DVD release and lasts about a year. That’s why, for example, you can’t currently rent or buy movies like Universal’s Bridesmaids or Fox’s Rise of the Planet of the Apes on platforms including Vudu, CinemaNow and iTunes. And as it stands now, this restriction also applies to UltraViolet, the studio’s big movie-cloud initiative. You can still buy a Blu-ray or DVD version of those movies, but you can’t also enjoy a digital version that can play on multiple devices.

But at a press conference Tuesday in Hollywood to announce Wal-Mart’s much-anticipated participation in UltraViolet, several home entertainment division presidents expressed confidence that an agreement will be made with HBO by the time Wal-Mart (NYSE: WMT) launches its big “Disc to Digital” UltraViolet promo campaign April 16. The studios backing Ultraviolet are Fox, Universal, Disney (NYSE: DIS), Paramount (NYSE: VIA), Sony (NYSE: SNE) and and Warner Bros. (NYSE: TWX) Of the five, three — Warner, Fox and Universal — have deals with HBO.
Warner Bros. The latter, which shares a corporate parent with HBO, has already relaxed its windows arrangement.

Indeed, in negotiating with HBO, Fox and Universal are hoping for an arrangement similar to what Warner Bros. Home Entertainment enjoys with its Time Warner Inc. pay-cable sibling. Warner Bros. is able to distribute movies that are in the HBO pay-cable window through UltraViolet — it just can’t put those movies out through other digital distribution channels. That means that, for a Warner title like the Robert Downey Jr. comedy Due Date that’s in the HBO pay-TV window, a consumer who has purchased — or purchases in the future — the DVD, Blu-ray or download copy of the film can watch on multiple devices through the UltraViolet cloud. But they can’t see it digitally otherwise.

“It would be better if there was no blackout at all,” said one home entertainment division president, speaking Tuesday to paidContent on the condition that not be named. “But it’s absolutely clear we have to get this worked out for the sake of UltraViolet.”

HBO, while not commenting to us, did tell the Wall Street Journal on Sunday that it would also be “relaxing” some of its exclusivity so that Fox and Universal can distribute through iCloud, too.

The issue of digital access through the HBO pay window has been a tricky one for several years. I first broached this subject with HBO and the affected studios in January 2010. At that time, all parties also expressed confidence that an agreement would be made soon that would free up Warner, Universal and Fox movies in the pay TV window to participate in digital platform distribution.

The negotiations are tricky for the studios, which are locked into lucrative longterm exclusive contracts with HBO. In 2007, for example, Fox signed a $1 billion agreement to tie its movies up on the premium cable network for the next 10 years.

Conversely, in 2010, Disney extended non-exclusive pay-TV contracts with Starz and Showtime through 2015. Those deals haven’t kept Disney titles like Alice in Wonderland and Cars 2 off platforms like iTunes and UltraViolet. However, it remains unclear on the outside if Disney is averaging anything near or above the $100 million a year Fox is getting through pay-cable distribution.

Meanwhile, UltraViolet’s top executives on Tuesday also explained the “Disc to Digital” features that were announced at January’s Consumer Electronics Show by Samsung for its new Blu-ray players. At the time, Samsung and UltraViolet’s backers said nothing about having to go to Wal-Mart to get your disc authenticated and “uploaded’ into the cloud — the new Samsung players were supposed to let you do that in the comfort of your own home for a “nominal fee.”

As it turns out, Samsung’s version of disc to digital is a little less baked than Wal-Mart’s. Samsung currently has an agreement with Warner Bros. to execute at-home authentication of titles through its players, but it hasn’t worked out deals with the rest of the major studios like Wal-Mart has.

Another bit of clarity Tuesday: Fox, which had been a member of the consortium backing UltraViolet but had not yet made any titles available for UltraViolet distribution, plans to be “all in” once Wal-Mart begins its in-store education push in April.

“We’ll start with 360-370 titles confirmed on the launch date,” said Simon Swart, executive VP of Twentieth Century Fox Home Entertainment.

Wal-Mart made its announcement Tuesday, at a press conference held at Hollywood’s Roosevelt Hotel alongside home entertainment executives from participating studios Fox (NSDQ: NWS), Paramount (NYSE: VIA), Sony (NYSE: SNE), Warner Bros. (NYSE: TWX) and Universal. The movies will be accessible through the retailer’s Vudu digital rental and sell-through service, with consumers paying $2 to convert each individual DVD and Blu-ray title to an UltraViolet cloud copy that can be played back through Vudu on a range of devices by numerous family members. Consumers willing to pay $5 a disc can convert standard-definition DVD titles to high-def digital copies.

With every major studio except Disney (NYSE: DIS) participating in UltraViolet, the initiative is seen by Hollywood as a means of encouraging rental-prone consumers back into the habit of movie purchasing. But has had a rough start, with only about 1 million users signed up since its October launch, and some consumers complaining that the technology isn’t simple enough to use.

Wal-Mart has promised to support the initiative with what Warner Bros. Home Entertainment president Ron Sanders called “a massive promotional campaign on the scale of a blockbuster film launch.” Under the agreement, Wal-Mart’s consumer education campaign — which will involve dedicated staff at more than 3,500 stores to walk consumers through the UltraViolet sign-up process and authenticate their discs –will be funded by UltraViolet’s parent consortium, the Digital Entertainment Content Ecosystem.

Eager to steer consumers away from lower-margin rental transactions and back to movie purchasing, Warner has been the most aggressive studio in pushing rental outlets like Netflix and Redbox to accept release delays. The studio was successful in getting Netflix to double its 28-day delay in January, but Redbox resisted a similar demand. Cut off from Warner’s special rental pricing since Feb. 1, the kiosk chain has been buying Warner new-release titles through consumer retail channels, making them available for rent one to two weeks after their disc premiere.

Speaking to an investor conference in San Francisco earlier this week, Paul Davis, CEO of Redbox parent company Coinstar, said the company was satisfied with this work-around — paying top dollar at retail for Warner titles has increased costs, he said, but Redbox has enjoyed higher customer uptake of Warner titles by offering them earlier in the release window.

In a note to investors the same day, Wedbush Securities analyst Michael Pachter expressed doubts that Redbox could ply its buy-it-retail strategy across multiple suppliers. He suggested the chain would either give in to extended windows with Universal when Redbox’s current contract with the studio expires next month — or it would have to cave to Fox (NSDQ: NWS) when that deal times out next year.

As it turned out, however, Redbox is no Netflix, which has publicly indicated its unwillingness to further promote and grow its DVD and Blu-ray rental business.

Disc rentals remain a booming business for Redbox, which just signed on to be the physical packaged media component to a Netflix-like video business being jointly launched with Verizon. Redbox just enjoyed fourth-quarter revenue increases of 40 percent to $445.6 million, driven by the installation of new kiosk outlets, and reflecting an increasing market share of an overall home entertainment business that remains in decline. With that comes some leverage in studio negotiations, apparently.

Other possible points of leverage for Redbox: The chain, out of courtesy, had been delaying the rental release of Warner titles like A Very Harold and Kumar Christmas for several weeks after street date. However, it has been threatening Warner with the prospect of no delay at all.

But at least one analyst thinks Redbox may be in for a rougher 2012.

Shares of Redbox’s parent company, Coinstar, which had risen 51 percent since Jan. 9 to a 15-month high of $62.10 Tuesday, dove nearly 4 percent Wednesday after Wedbush Securities analyst Michael Pachter expressed a number of concerns about Redbox. He also dropped the company from his “Best Ideas” list.

Pachter told investors that Wedbush still doesn’t have enough information about how much revenue the new streaming venture with Verizon will bring Redbox in the near term. “We’re still reluctant to model any kind of contribution,” he wrote. Redbox announced on Feb. 6 that it will contribute the physical DVD and Blu-ray rental infrastructure to a new movie-rental service being jointly developed with Verizon to compete head-on with Netflix.

He also questioned Redbox’s decision earlier this month to draw a line in the sand by not agreeing to new windowing terms with Warner Bros. Those terms stipulate that Redbox wait 56 days after DVD and Blu-ray release dates to begin renting Warner titles at its kiosks. Redbox could face similar disputes with two other studios when they renegotiate over the next year, and Pachter said that embarking on this new venture in light of that might not be such a good idea.

The hardline move by Redbox– which cut Redbox off from Warner’s video rental fare — was in sharp contrast to an earlier capitulation by Redbox rival Netflix (NSDQ: NFLX), which agreed in January to let Warner essentially double its rental window on its service from 28 days. Speaking at an investor conference in San Francisco Tuesday, Coinstar CEO Paul Davis said the company was “very pleased” with the results of a work-around to its little Warner Bros. problem, which essentially involves Redbox staffers buying Warner titles like A Very Harold & Kumar Christmas at mainstream retail outlets like Wal-Mart (NYSE: WMT). It’s costing Redbox more to pay top dollar at retail for Warner discs, Davis conceded, but the chain is making up for a lot of that expenditure by being able to rent Warner DVDs without a window.

While many in the home entertainment industry see Redbox as making a bold stand that Netflix would not, Pachter told investors that Redbox’s “work-around” isn’t a viable strategy for the longterm — not with an agreement with Universal calling for a 28-day window set to expire in April, and a similar deal with Fox (NSDQ: NWS) due to time out next year.

“We expect Universal and Fox to potentially follow suit, making a work-around far more difficult to manage,” Pachter wrote Wednesday, noting that earlier windows disputes with Warner, Fox and Universal also sent Redbox stock tumbling back in 2009.

“While we don’t necessarily expect a repeat of the last workaround, especially given that the current one is working from day 28 to day 56, we are concerned that the outcome could be messy,” he added.

The No. 3 paid TV service in America behind Comcast (NSDQ: CMCSA) and DirecTV (NYSE: DTV) reported earnings of $313 million for the October-through-December period, up from $252 million a year prior. Revenue was also up 13 percent to $3.63 billion. And Dish added 22,000 subscribers in the quarter, ending a lengthy customer drought. Dish now has about 14 million U.S. subscribers. All of these metrics met or beat the forecasts of analysts.

“By introducing new Blockbuster-branded services, we’ve begun to turn the tide in subscriber losses while continuing to face increased competitive pressures,” Dish CEO Joe Clayton said in a statement. Dish paid $228 million in cash last April to acquire Blockbuster out of bankruptcy. It then launched a Blockbuster-branded streaming service in October, bundling it with its satellite video service and diversifying its business in the face of a maturing U.S. pay-TV subscription market.

Dish’s competitors are also getting into the internet movie-streaming game, with Comcast announcing a new service called Streampix earlier this week. While Dish seems pleased with the competitive juice that Blockbuster’s streaming operation is giving it, the satellite company seems determined to slowly back away from Blockbuster’s physical rental-chain roots. Citing competition from kiosk operators like Redbox, Dish said it’s closing around 500 Blockbuster stores with expiring leases. It also said it “may close” additional stores. With Dish proving successful so far in its objective to transition Blockbuster into a brand for streaming video content, it seems unlikely the company will have any interest in operating the remaining brick and mortar stores beyond the lifespan of their lease agreements.

Meanwhile, Dish chairman Charlie Ergen said the company eagerly awaits the Federal Communication Commission’s approval decision on its $1.4 billion acquisition of bankrupt wireless spectrum company TerreStar. With spiraling programming cost cutting into the margins of the pay TV business, cable has found relief in broadband services. For its part, Dish is looking to augment its portfolio with a new wireless broadband service, too. The FCC has set a March 12 deadline for its decision.

“It would transform not only our company but the way people use wireless in the United States,” Ergen told investors Thursday. “The business we’re in today and wireless (broadband) are a package deal. Right now the cable industry is best positioned to take advantage of that. I hope the administration wants some competition to that.”

In documents filed Friday in Seattle, investors led by a Rhode Island pension fund proposed a $6 million settlement to compensate them for losses they incurred in January, 2011.

At that time, Coinstar’s stock price tanked in response to the company’s revelation that major studios had forced Redbox to delay new releases by 28 days. The studios imposed the delay as part of a “windowing” strategy to ensure Redbox’s $1 rentals didn’t undercut store sales.

The delay hurt Redbox’s business strategy and, by extension, Coinstar, which counted on Redbox for 80% of its revenue.

In a series of lawsuits filed in early 2011, investors claimed Coinstar and its executives committed securities fraud when when they failed to disclose the delay and instead issued artificially rosy earnings predictions.

The proposed settlement claims that $6 million is a reasonable recovery of the $96 million that investors allegedly lost when Coinstar’s share price fell.

The settlement, which came after months of negotiations, must be approved by the court. If a judge gives the go-ahead, the money will then by divided proportionally among investors who file claims. Lawyers typically take 25 percent of any class action award.

Coinstar’s video rival Netflix (NSDQ: NFLX) is embroiled in a similar lawsuit. Last month, investors sued Netflix and its executives on the grounds that they failed to disclose that the company would be forced to pay significantly more for its content.

Coinstar did not immediately return a request for comment. The company’s share price closed today at $58.22 which is approaching the $66 high it reached in fall of 2010.

Proposed Coinstar Settlement

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This article originally appeared in GigaOm.