Redbox Can't Wait for This Disney Flop

Hollywood likes to keep tight reins on movie releases. Every major film goes through the same cycle: movie theaters, DVD/Blu-ray releases, premium pay-TV, and then syndication to any outlet willing to pay for the privilege.

For ages, disc rentals followed on the same day as the hard-copy release, but that changed a few years ago. Now, rental outlets often have to wait about a month before getting their hands on the hottest new DVD and Blu-ray releases. You want the hottest new releases while they're still steaming (and before they start streaming)? Go to your local megamart and buy them!

But Redbox operator Coinstar (Nasdaq: CSTR  ) has started to fight the system. First, Time Warner's (NYSE: TWX  ) Warner Bros. studio doubled its waiting period from 28 to 56 days -- and Coinstar lined up at local retail stores to stock up those rental boxes. A few weeks ago, Walt Disney (NYSE: DIS  ) quietly started a 28-day delay policy for some -- but not all -- new releases. And wouldn't you know it -- Coinstar thumbs its nose at this delay, too, and is buying copies of John Carter at retail prices.

Digital-video maven Netflix (Nasdaq: NFLX  ) tends to play by similar release-window rules. The service currently lists Carter as available on DVD and Blu-ray, but without an estimated shipping date. Given the company's ongoing efforts to sign decent digital-distribution deals with every major studio, it doesn't make much sense for Netflix to throw a tantrum over these windows.

The so-called first-sale doctrine makes Coinstar's move perfectly legal and indeed helped get the whole movie-rental industry off the ground in the first place.

The idea behind these staggered windows of availability is to protect revenue from the most profitable sources, namely theatrical releases and full-price disc sales. Studios fear that early rentals might undercut the higher-margin sales. However, a revolt like Coinstar's could do even more damage to the revenue flow by combining three unfortunate factors:

  • The windowed delay is gone, finito, forgotten, so the very threat Disney and others want protection from still comes into play -- and studios get nothing in return.
  • Redbox discs are typically sent back to the supplier for a modest credit when their useful life is over. That's not an option for retail discs, giving Coinstar incentive to sell their used wares at end-of-life -- reducing the value of full-priced DVDs once again.
  • If you want back-catalog favorites at a deep discount, you go to Netflix. The Redbox service is all about hot-off-the-presses hit material, and the company can ill afford to wait for cheaper access when the movies are growing stale.

So it looks like Warner and Disney are shooting themselves in the foot with a move designed to protect sales. One day, Hollywood will figure out how to make the most of its filmed content in an increasingly digital era, but these delays aren't really helping.

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Fool contributor Anders Bylund owns shares in Netflix and has also created a bull call spread position on that stock, but he holds no other position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of Walt Disney and Netflix. Motley Fool newsletter services have recommended buying shares of Walt Disney, Coinstar, and Netflix. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On June 08, 2012, at 5:47 AM, leeping1 wrote:

    Without a direct studio deal, the studios also lose out on all the 'B' title movies that Redbox would normally be contracted to purchase. Plus without the contract, Redbox can purchase fewer copies than agreed upon.

    I used to buy movies because it insured I could watch it whenever I wanted. I stoped buying movies because I can find it online a year or so later for free - legally. It is not the 28 day thing.

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