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Coinstar Inc. (CSTR) Thursday reached a pact with Universal Studios that retains a 28-day delay on new titles for its Redbox rental kiosks, calming investor jitters that Hollywood might have been angling for even longer lags.
Shares were up 5.2% at $61.26 in recent trading. The stock has rallied this year on strong results from Redbox--Coinstar's biggest business--as well as plans to enter digital streaming video and buy a rival's DVD kiosks.
Galen Smith, senior vice president of finance at Redbox, said the agreement was a further validation of Redbox and how the kiosk-rental space can be one of the best distribution channels for studios' content.
The new deal with Comcast Corp.'s (CMCSA, CMCSK) Universal, which basically extends the current agreement through August 2014, comes as consumer options for home video broaden to more formats from a wider range of companies, often causing studios to scrupulously guard their shrinking piece of the pie.
Recently, Redbox failed to reach a similar extension with Warner Brothers. The Time Warner Inc. (TWX) studio insisted on doubling Redbox's supply delay to 58 days after home-entertainment release, a stipulation the kiosk company rejected. Coinstar has said it always prefers its studio deals to make DVDs available to kiosks the same day they are available for consumers, with Redbox paying studios for that immediacy.
Redbox eventually let its deal with Warner Brothers expire in January. That forced Redbox into a "work-around" to get Warner titles in its kiosks. Such a process forces Redbox to pay more for content but allows it to be more selective on the titles it buys and the quantities it in which it buys them. It also allows Redbox to offer titles sooner than it otherwise would.
Also easing concerns about availability earlier this week, Coinstar Chief Executive Paul Davis said the company was pleased with the Warner work-around so far. He said despite losing the availability agreement, Redbox is meeting consumers' demands.
Studios would like to increase the waiting period to stimulate customer use of video on demand or purchases of DVDs, both of which are more lucrative for them. DVD sales have been falling in recent years, as consumers turn more to rental kiosks like Redbox or DVD-and-streaming services like Netflix Inc. (NFLX).
However, Smith said supplying DVDs to kiosks actually improves the possibility of buying. He said the company's research with studios has shown that cannibalization of DVD sales is minimal at best.
The reason is Redbox's low price point, he said, which provides easy access to content for consumers who otherwise wouldn't cough up the full cost of a DVD initially. Even after a price increase last year, most titles in Redbox kiosks are available for $1.20, versus about $5 for video on demand and $15 for a DVD.
He also said the kiosks can be marketing engines for films. The company has about 35,400 Redbox kiosks in 29,300 locations like Walgreen Co. (WAG) drug stores and Wal-Mart Stores Inc. (WMT) supercenters.
Investors will get more insight into Hollywood's attitude toward kiosk-availability agreements this summer, as Redbox's deal with News Corp.'s (NWSA, NWS, NWS.AU) Fox is set to expire in August. Analysts at D.A. Davidson Research said Thursday the Universal agreement materially lessens the worry about Fox.
News Corp. owns Dow Jones & Co., publisher of this newswire, and The Wall Street Journal.
However, the Universal agreement Thursday likely won't have any effect on digital-content discussions with studios linked to Coinstar's developing digital-video joint venture with Verizon Communications Inc. (VZ), a partnership unveiled last month. This week, Davis said the joint venture will be keeping studio negotiations separate, with Coinstar continuing to focus on the physical side while Verizon will focus on the digital side.
The companies are planning to launch the subscription online-video service in August. Universal's parent, Comcast, also said last week it was launching a subscription streaming-video service.
-By Joan E. Solsman, Dow Jones Newswires; 212-416-2291; firstname.lastname@example.org