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!