In this new world of DVD Kiosk video rentals the consumers are getting a great product at a great deal. But its really messing with the model that the studios have setup. Consumers are pulling $1 movies out of rental kiosks in record numbers every day. This has prompted some of the studios to start trying to cut off supply of DVD’s to the kiosk providers.

The low-price DVD rental business worries movie studios because they fear it is undercutting DVD sales, which have been dropping 10-15% each quarter, according to analysts.

In recent years as ticket sales have barely offset production and marketing costs, DVD sales have been the means for studios to earn a profit on movies. Some studios say consumers will forgo buying DVDs if they have a cheap rental option.


Blockbuster Express and Redbox currently obtain its DVDs from Ingram and/or VPD, wholesale movie suppliers that have contracts with the major studios. As Redbox is the big gorilla in the room that is doing millions of dollars in $1 rentals, in late 2008 Universal threatened to cease providing those wholesalers with access to goods unless Redbox agrees to bow to Universal’s demands.

The agreement, which was submitted to the court along with the lawsuit (first reported by Content Agenda), would impose significant restrictions on the manner in which Redbox operates its kiosks. It would prohibit Redbox from selling used DVDs, require Redbox to wait until 45 days after a DVD is released before offering it for rental, limit the number of movies that can be distributed through the kiosks, and would force Redbox to give Universal 40 percent of its total gross revenues. Redbox rejected the deal, Universal ordered wholesalers to cut off supplies. Redbox then sued Universal, alleging restraint of trade.

Universal says it has the right to direct wholesalers to conform with its marketing plans and determine when a motion picture will be available to the public. But according to analysts like the Richard Ingrassia at Roth Capital Partners who were speaking about the announced expansion of Blockbuster Express, Universal Studios will have no choice but to settle the lawsuit. Ingrassia wrote: “We believe application of the First Sale Doctrine (17 U.S.C. Sec. 109) will prompt Universal Home Entertainment to settle its content dispute with Redbox, clearing the way for more rapid expansion.”

The First Sale Doctrine establishes that a copyright holder loses control of a lawfully made copy once it has been sold. So the new owner has the ability to sell, rent, or otherwise dispose of that copy as long as no additional copies are made.

It seems to me that DVD rentals have been available for over a decade and I don’t know why they feel that just now its hurting sales. I look behind me at my desk and there is huge bookcase of DVD’s. It doesn’t seem to stop me to rent movies. I still end up buying ones that I want at no different a pace than I did before. It feels like some knee jerk reaction that someone had where they thought they saw some correlation between the two. What do you think?