Redbox Sees Red

Redbox parent Coinstar (Nasdaq: CSTR  ) has had enough. It's tired of having studios deny the DVD rental kiosk operator the right to rent out new releases for a mere buck a night.

It filed a lawsuit against News Corp.'s (NYSE: NWS  ) 20th Century Fox yesterday, alleging that the studio is banning its third-party distributors from supplying Redbox with fresh releases.

Coinstar already has a similar suit against General Electric's (NYSE: GE  ) majority-owned Universal Studios.

Who is right? The legal system is going to have a lot of serious chewing to do, because both sides have legitimate beefs.

Studios fear that the value proposition of $1 rentals will eat into actual purchases.

You see this beyond Redbox. Netflix (Nasdaq: NFLX  ) has no problem stocking new releases, but most of the major studios have been reluctant to broker deals for online streaming of their flicks, which Netflix makes available to its active subscribers at no additional cost.

If rentals can be had for a buck, why pay $17 for a new DVD? Why even rush to a multiplex to see it months earlier?

Coinstar also has a legitimate gripe. If Blockbuster (NYSE: BBI  ) can rent at a higher price point -- or add free or discounted in-store DVD exchanges to its Netflixesque offering -- why is Coinstar the one being penalized for disrupting the value perception and being told what it can charge?

Some Wal-Mart (NYSE: WMT  ) stores have no problem housing Redbox kiosks. Do you think that the world's largest retailer would allow that if the buck rentals were cannibalizing DVD sales?

This is going to be an interesting battle. I just hope that the studios realize that they are simply delaying the inevitable. As physical platforms give way to the broader acceptance of digital delivery, they'll all be toast. Movie prices will fall, and physical kiosks will be harder sells.

Where do you stand on this legal tussle?

  • Coinstar will win. Redbox should have access to all titles.
  • The studios will prevail. They shouldn't be forced to sell to a steep rental discounter.

Scroll down and let us know what you think in the comments box below. 

Netflix is a Motley Fool Stock Advisor selection. Wal-Mart Stores is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletter services, free for 30 days. That's less than a Redbox rental!

Longtime Fool contributor Rick Munarriz is surprised that the Winn-Dixie supermarket chain appears to be the only retailer stocking Redbox kiosks in his hometown of Miami. He owns shares in Netflix. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (3)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 13, 2009, at 5:02 PM, militauro wrote:

    I think movie studios are wasting their time. Redbox is not doing anything illegal and therefore should not be singled out.

  • Report this Comment On August 13, 2009, at 5:11 PM, wieberd wrote:

    The studios are arcane in their thinking and business model~times have changed since the neighbor theater!

  • Report this Comment On August 13, 2009, at 9:45 PM, peterefalk wrote:

    It seems to be an unfair business practice. Aside from artificial price maintenance, what could be the point?

  • Report this Comment On August 13, 2009, at 10:14 PM, wmtworker wrote:

    Studios shouldn't be forced to sell at a price they don't want to.

  • Report this Comment On August 14, 2009, at 11:51 AM, badenis wrote:

    The studios can always charge Redbox more then the

  • Report this Comment On August 14, 2009, at 3:00 PM, todavek wrote:

    The studios eventually will be forced to give in. They have a valid point, but that doen't assure they'll have their way, especially in this anti-business, wealth redistribution government-controlled culture Obama created.

    Maybe the studios could add a surcharge to distributions all the rental outfits for the 1st 30 days, and the rental guys would pass it on if they want the movie in the first month. I'm sure customers would be willing to pay a 25-40 cent surcharge. I would. Complicates their transaction enormously but maybe evry

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