LOS ANGELES — Hollywood studios are split over Redbox, the $1-per-night DVD rental kiosk company: They could supply it with cheap wholesale discs and ride its massive growth, or starve it in the hopes of preserving higher-priced purchases.
News Corp.'s 20th Century Fox fell on the side of starvation last week, joining Universal Pictures, whose withholding of discs prompted a lawsuit.
On the flip side, Sony's movie division signed a five-year deal just last month to supply Redbox. As part of the deal, Redbox would get discs more cheaply but would have to destroy copies after their rental lives ended rather than sell them as "previously viewed" for $7.
Although fans of the self-service vending machines won't notice a difference, the approach is crucial to both Redbox and the studios.
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Lack of studio supply forces Redbox to buy discs from regular retailers — just like an individual might go to Wal-Mart or Best Buy — cutting into profits and stifling its growth. The studios want to keep their consumers happy, but are concerned the cheap kiosks could erode demand for higher-priced DVD purchases, which are the lifeblood of the industry.
"I do not think this will destroy the film business, but it's certainly a major issue over the next few years, especially if it continues to grow at the rate it's growing," Pali Capital analyst Rich Greenfield said. "Whether or not the titles get sold at the end of it, $1 a day does not help the entire movie industry."
Redbox has 17,900 kiosks in the United States and plans 8,500 more this year.