Coinstar Pact With Universal Eases Availability Jitters
March 01 2012 - 04:01PM
Dow Jones News
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;
joan.solsman@dowjones.com
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