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.
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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.
