Fox Keeps Its Enemies Close

The music industry has been historically slow to react to competitive forces and industry breakthroughs. Now it's Hollywood's turn. Tinseltown has been trying to dodge the same bullet as it battles new and growing competition from Netflix (Nasdaq: NFLX  ) and Coinstar's (NYSE: CSTR  ) Redbox.

These businesses, through their vast, cheap distribution networks, have changed the way people view, rent, and ultimately purchase movies. But the shifts they've introduced aren't just affecting at-home viewing; they may bring down the curtain on live cinema all together. Or so some say. The Los Angeles Economic Development Corp. has stated that every $1 billion in lost rental and retail revenue results in a $520 million hit for the motion picture industry.

To combat cheap DVD rentals, which apparently cost studios millions of dollars in lost revenue, some of the bigs are now fighting back. Time Warner's (NYSE: TWX  ) Warner Brothers, News Corp.'s (Nasdaq: NWS  ) 20th Century Fox, and General Electric's (NYSE: GE  ) partially owned Universal are all trying to keep their new releases out of Redbox's kiosks. There's now a pending legal dispute over whether Fox can refuse to sell its new releases to Redbox. Redbox contends that in the meantime, it will find other ways to purchase new releases, even if that means using a middleman such as Wal-Mart (NYSE: WMT  ) to furnish new movies for its kiosks.

Has Redbox's strategy worked? At least according to Fox researchers, it hasn't.

In October and November, the Fox espionage unit checked more than 1,000 Redbox kiosks in more than 30 states to see how many of the studio's new releases were actually available there. The results were favorable -- for the studio, at least. According to Fox, a day after Ice Age: Dawn of the Dinosaurs was released, only 5.6% of Redbox's kiosks carried the movie. A week later, that number was only about 33.1% -- far less than the figure for a new release from Disney (NYSE: DIS  ) , one of the few companies that has not jumped on the boycott bandwagon.  

Fox concludes that Redbox's "workaround" of the problem is not working. Obviously, Redbox thinks differently. 

President Mitch Lowe said that his company's had no problems filling kiosks with new releases, and that typically, a new film will only be available about 30% of the time. "It's a little more work and a little more challenging for us, but we've been able to stock them all," states Lowe.

Will Redbox be in trouble if its litigation fails, or will it be fine either way? Are the movie studios overreacting by taking such a strong stance against kiosk rentals? Sound off in the comments below!

Fool contributor Jordan DiPietro owns shares of General Electric. Walt Disney and Wal-Mart are Motley Fool Inside Value recommendations. Walt Disney and Netflix are Motley Fool Stock Advisor picks. Try any of our Foolish newsletter services free for 30 days. The Fool's disclosure policy doesn't need to spy to get good information.

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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 January 06, 2010, at 1:53 PM, picksigma wrote:

    Time Warner's (NYSE: TWX) Warner Brothers, News Corp.'s (Nasdaq: NWS) 20th Century Fox, and General Electric are shooting themselves in the foot by restricting access to new releases to Redbox and other forms of media access.

    Ease of access and a cheap price are only 2 reasons why people use the kiosks - both are related, but the key is that not everyone wants to own movies or go to theaters. In fact, by the popularity seen growing in alternative media access, these guys would be advised to make the deals while the deals are to be "got" so to speak.

    All of the rentals come with trailer advertizing for existing and future rentals, and folks who use Redbox and others would just as well rent an "old" release and wait for the new ones - These hold out theaters are cocky and deserve the bitter pill they will inevitably be forced to swallow (they ain't that important, and their movies ain't that great) - But Redbox and Netflix are.

    I can't wait for the day when my grampa can rent a live movie (in theaters) right off his TV, for a few dollars more!! Gramps hates the filthy, noisy, disease infested, overpriced crime ridden public!! Now get off my lawn!!!!

  • Report this Comment On January 14, 2010, at 1:14 PM, Fool wrote:

    These greedy studios went through this back when TV first appeared.

    Then it was the VCR. And lost the battle. But in a way they did'nt completly as rentals now account for more than theatre profits in some cases.

    And as already stated people don't want to own movies that much anymore. I have noticed the fall of Blockbuster,and Hollywood video is now working on $1 rentals too. Time the studios see the writing on the wall. You can't have it all. The public won't let you.

  • Report this Comment On January 17, 2010, at 6:56 PM, sector7000 wrote:

    I've hears this many times, studio's are greedy people want to save money, I agree, people want to save money but there is a price for saving the money that everyone overlooks. When I used the redbox i had to wait in a line of other people who not only didn't know how to navigate it's menus or couldn't find the movie they wanted you had to stand there for 10 to 15 minutes. I visited 5 different sites to return my dvd, if the machine is full you can ot return it at that machine, thus driving to find another one.Yes you can reserve online if its available at any locations. Another problem is returned dvd's not returning into the system and after 25 days poof it's yours. Good luck getting ahold of someone in 10-15 minutes. I myself perfer to go into a store, yes i pay a higher rate for the movie, but i don't have to wait in the weather or for some knucklehead to go through and choose titles they want if their movie is not in. I perfer talking with people and looking a bigger selection of films. Most store have plans your can pay for monthly that covers rentals for the month and ends up being cheaper that redbox anyways. If you watch only a handful of movies a month redbox might be ok for you if you return it back in one day other than that you are throwing your money away. If the studios don't make their money back, guesss what? no movies. Do you think the actors will take a pay cut (right).

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