Fox Slaps Back (Legally) at Redbox
by Kara Swisher
Posted on October 1, 2009 at 4:03 PM PT
In the ongoing fight between Redbox–which rents DVDs from kiosks for $1–and major Hollywood studios, 20th Century Fox Home Entertainment just filed a brief to dismiss Redbox’s lawsuit against it.
Said Fox in a statement:
“Redbox’s legal claims are fatally flawed. Fox’s filing today makes clear that, in the end, the case is all about Redbox’s refusal to make a business deal on general terms similar to those paid by others in this industry. Instead, Redbox has insisted that Fox sell DVDs to them through distributors, on the date they demand, at the price they want to pay. Unable to get the terms it wanted at the bargaining table, Redbox instead decided to file this meritless lawsuit.”
In a statement, Redbox president Mitch Lowe responded to the filing by stating that Fox was anti-consumer.
“Twentieth Century Fox continues its pursuit to prohibit consumer access to new release DVDs at affordable prices…Redbox remains steadfast in our commitment to protecting consumers’ rights and to providing our customers the DVDs they want, where they want and at the low price they want.”
In two briefs filed this afternoon, refuting Redbox’s allegations, Fox is asserting that it has not refused to provide DVDs to the outfit and has tried to negotiate a deal.
Under contention between the two are the price and terms of when DVDs of hit movies can be released to Redbox.
Redbox has asserted that Fox is violating antitrust laws and copyright misuse in not selling DVDs to the company.
Fox denied that claim in the brief, noting that Redbox simply did not want to pay up in order to get certain DVDs on the “street date,” as do other retailers.
Fox is one of three studios that have become embroiled in lawsuits with Redbox.
Located in Oakbrook Terrace, Ill., and is wholly owned by Bellevue, Wash.-based Coinstar (CSTR), Redbox is seeing strong rental growth due to its $1-a-night price for first-run movies, which the company distributes via its 15,000 freestanding machines in supermarkets and convenience stores, as well as in big chains like McDonald’s (MCD), Wal-Mart (WMT) and Walgreens (WAG).
Its fascinating legal battle with the studios centers around the issues of steep discounting, release windowing and the price for premium content.
Redbox recently sued Warner Home Video, owned by Time Warner (TWX), for denying it the opportunity to buy DVDs without being required to wait a month or more to rent them out.
It has previously gone after NBC Universal’s Universal Studios Home Entertainment, owned by GE (GE) and Fox, a unit of News Corp. (NWS), for similar release restrictions.
The trio’s movies make up 40 percent of the DVD rental market.
In its brief today, Fox noted that it was willing to sell to Redbox directly, rather than via wholesalers, but that talks collapsed over pricing issues.
And while some studios are holding fast to fighting price declines represented by consumer-friendly, idiot-proof tech solutions like Redbox, others are not.
Redbox has inked deals with Sony (SNE); Lions Gate (LGF); Paramount, a unit of Viacom (VIA); and also gets movies from Walt Disney (DIS).
Here are two briefs filed by Fox in U.S. District Court in Delaware, the first, a motion to dismiss the lawsuit by Redbox, and the second to transfer venue to California:
FINAL Opening Brief in Support of Fox’s Motion to Dismiss
(Full disclosure: Fox is owned by News Corp., which also owns Dow Jones, owner of this site.)
Comments
This is a great article kind of explains what’s going on out there
Redbox Roulette: Gambling With the Industry’s Future
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nowBuzz up!Published: October 07, 2009
TheWrap recently ran a blog post by Redbox CEO Mitch Lowe titled, “We Are the Engine for Industry Growth.” Lowe states that Redbox’s business — based on $1 DVD rentals — will “grow overall interest in and purchase of DVD entertainment.”
As the CEO of a Hastings Entertainment, a retailer that pioneered low-cost rentals, I understand firsthand Lowe’s enthusiasm for $1 DVD rentals. Consumers love the price, and we love the increased business that $1 DVD rentals bring.
But there is one crucial issue involving $1 DVDs that Lowe fails to address — and it must be acted upon if we want to prevent what is happening to the newspaper industry from happening to the entertainment industry: We must prevent the devaluation of new entertainment products.
We simply cannot give away products that cost hundred of millions of dollars to produce or else we will end up just like the newspaper industry, which now has an unsustainable business model.
Once the main product of an industry is artificially devalued, the negative economic impacts will ripple throughout the industry, impacting the workers and businesses that rely on the overall industry. Let’s not create a modern-day “Goose that laid the golden egg” parable.
I believe there is a solution that allows Redbox to continue charging $1 for DVDs — on a release schedule that fits in with the current model of the entertainment industry. The movie business has an established release model — called a windowing model — based on releasing movies, pricing tickets, and selling and renting DVDs. Instead of disrupting this model by renting $1 DVDs as soon as they become available, Redbox needs to compromise by integrating itself into this established industry model.
Here is how the release windows work: The studios initially provide their movie to theater owners, enabling them to provide consumers with national access to a wide variety of films. Then that content goes to the home entertainment window, where consumers can buy or rent a physical copy or an electronic copy of a film. The content then travels to the pay TV window, and finally to cable.
The Redbox $1 movie rentals cannot expect to disrupt this model without having disastrous consequences for the income streams of the movie industry.
For example, if new releases would be available for $1 rental, consumers would be encouraged to forgo watching a movie in the theaters and instead wait a few months. Consumers would be discouraged from renting from bricks-and-mortar video stores — putting these stores out of business and reducing access to the thousands of movies that can’t fit into a kiosk. Consumers would be discouraged from watching the movie on pay TV or streaming to their computer for $3.99 when the movie can be rented for a single dollar. Consumers might not buy a DVD if they know they can rent it occasionally for just $1. And the examples go on and on. If movies are devalued in this way, those who work in the movie industry will be directly harmed. Reduced industry revenues will mean that fewer movies are produced — directly reducing the number of jobs available to people who work both in front of and behind the cameras.
These negative impacts are not theoretical. The decision by the management of newspaper companies to give away their product online is now having extraordinarily serious economic consequences — not just for the management of these newspaper companies, but for the workers and reporters who have lost their jobs by the tens of thousands.
Mitch Lowe’s approach to $1 DVD rentals might make him a lot of money in the near term, but it will destroy the entertainment business and result in thousands of lost jobs in the months ahead. There is a way to prevent that from happening if Redbox would try to work with the entertainment industry instead of against it. $1 movie rentals have a role in the entertainment industry’s “windowing model,” and if Redbox truly has the consumer’s best interests in mind, it will work with the studios on an appropriate release model. Now that would be a true win-win-win for Redbox, the movie studios and consumers.
Posted by jon engen at October 9th, 2009 at 8:45 am