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Sony Pictures-Redbox deal underscores value of bargain DVD rentals

July 22, 2009 |  9:30 am

Kgzed3ncREDBOX Sony Pictures Home Entertainment's new licensing deal with Redbox Automated Retail -- operator of those $1 DVD rental kiosks in grocery and convenience stores -- adds up to some serious coin.

Sony stands to collect approximately $460 million over the term of the five-year agreement, which extends through September 2014, according to regulatory filings. The deal is the first publicly disclosed arrangement with a major studio, underscoring how valuable the movie-rental vending machines have become.

"Our consumers have always been the best barometer of where our business needs to go, and clearly Redbox has become an important distribution option," said David Bishop, president of Sony Pictures Home Entertainment.

The studios have struggled over how to respond to Redbox, which rents out movies at prices that undercut those charged by traditional video rental stores such as Blockbuster. Some home entertainment executives worry that the kiosks, now found in more than 17,000 places nationwide, are undercutting DVD sales.

Sales of packaged media were off by 13.5% for the first half of the year, with the drop in DVD sales only partially offset by the growth in purchases of Blu-ray discs and digital distribution. Rental spending rose 8% in the same period, according to DEG: The Digital Entertainment Group, a trade organization.

The trade publication Video Business reported that kiosks are fueling the growth in rental, with revenue up more than 150% in the first half of the year, according to Rentrak.

-- Dawn C. Chmielewski

Photo: Anja Murphy returns videos to a Redbox kiosk in an Albertsons supermarket in Santa Monica. Consumers can rent DVDs using credit or debit cards. Credit: Lawrence K. Ho / Los Angeles Times