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Disney raises wholesale price on Redbox and Netflix

February 16, 2011 |  8:05 am

Amid calls from some on Wall Street to choke off the supply of newly released DVDs to discount movie rental services, Walt Disney Co. has quietly decided to hike its wholesale prices on new-release DVDs for Redbox and Netflix, according to people familiar with the matter.

The move marks a subtle shift in Disney's relationship with Netflix and Redbox, and one that stands in contrast with most of Hollywood's dealings with the two rental giants. Other studios have refused to supply DVDs to Netflix and Redbox until 28 days after they are released out of concern that low-cost rentals will undercut DVD sales. Disney, on the other hand, all along has been supplying Netflix and Redbox with DVDs at the same time they go on sale, albeit at a lower price.

Disney will now charge Redbox and Netflix the full wholesale rate -- as much as $17.99 -- for its DVDs, the people said. That's more than studios often charge their largest wholesale customers and less than big retailers like Wal-Mart charge consumers for the popular new releases.

The change started with "Secretariat," which was released on DVD on Jan. 25, even though the studio said nothing public about it at the time.

Disney believes that its family-friendly fare, particularly animated films, is the type that consumers want to own for repeated viewing and therefore is not likely to be hurt by rentals, according to a person with knowledge of the situation.

How the new policy with affect Disney remains to be seen. By increasing the prices Redbox and Netflix pay for new releases, Disney could either increase the revenue it generates from those companies or force them to buy fewer copies and reduce their supply. That in turn could push frustrated consumers who want to rent toward other options like cable and Internet video-on-demand.

Redbox President Mitch Lowe confirmed that his company had reached a new agreement with Disney but said it would continue to offer Disney DVDs the same day they go on sale for $1 per night. A Netflix spokesman declined to discuss the issue. However, "Secretariat" is currently available to the company's subscribers.

The wholesale price Disney charges Netflix and Redbox for DVDs would drop to $10.79 at 28 days after they go on sale, according to one person with knowledge of the matter. That's the same amount of time that Fox, Universal and Warner make Redbox and Netflix wait to offer their movies. Sony imposes the four-week delay on Netflix only for movies that gross more than $50 million at the domestic box office. Paramount offers its movies to Redbox and Netflix the same day they go on sale.

The studios that have imposed delays have contended that $1-per-night rentals from Redbox kiosks or Netflix subscriptions devalue their content and undermine more-profitable disc sales and video-on-demand rentals.

There has been pressure on Disney to follow their lead. Outspoken media analyst Richard Greenfield of BTIG recently recommended that the media giant do just that, saying it would be "an important step in diminishing the negative impact Redbox is having on the movie industry."

A Disney spokesman declined to comment. However, the company will probably discuss its home-entertainment strategy at an investor conference in Anaheim on Thursday, a person familiar with the matter said. 

-- Dawn C. Chmielewski and Ben Fritz

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