As the old joke goes, everyone knew the floating crap game was crooked but played anyway — because it was the only game in town. This came to mind with a Wall Street Journal report earlier this week that Sony Pictures has entered into a distribution agreement with kiosk video rental firm Redbox. In addition, according to an earlier report in the Journal, Walt Disney and Lions Gate Entertainment may have made similar deals with Redbox.
To date, most studios have not viewed Redbox as an ally. Universal Pictures sued to force the company to stop distributing its movies. The case is currently awaiting a ruling.
The issue, naturally, is over money. Mass distributors such as Blockbuster and Netflix pay the studios a percentage of their rental fees and, in return, receive bulk shipments of popular DVD titles directly from the studios. Redbox, on the other hand, buys from distributors such as Ingram Entertainment and only pays the purchase price of the DVDs.
As reported in the Wall Street Journal, the new arrangement with Sony allows Redbox to buy directly from the studio at a lower price than it would receive from distributors. The deal apparently does not include a revenue sharing arrangement. But it does, according to the article, require Redbox to destroy (rather than retain the rights to resell) the DVDs once they are removed from the rental service.
Although the pricing details weren’t announced, it’s unlikely that Redbox is receiving the same discounted rate as revenue sharing partners such as Blockbuster. Nonetheless, one suspects that companies like Blockbuster and Netflix will look askance at such an arrangement. When the time comes to renegotiate their contracts with Sony, expect these firms to come to the bargaining table with renewed demands.
For its part, Sony is trying to make the best of a bad situation. Despite the lack of revenue sharing, the arrangement with Redbox is an opportunity to eke out a little more profit from the declining DVD market. As revenues from physical media like DVDs continue to erode, deals like this may represent the only game in town.