News

Calif. group says low-cost DVD-rental kiosks could cost home video industry $1 billion

December 7, 2009

The Los Angeles County Economic Development Corp. (LAEDC) has announced results of an economic study that it says illustrates the negative impact of low-cost DVD rentals, such as those at redbox, Blockbuster Express and other DVD-rental kiosks, on the Southern California economy.

According to a news release from the LAEDC, "The Economic Implications of Low Cost DVD Rentals" indicates that an estimated $1 billion in lost revenues to the domestic home video industry in the region because of low-cost DVD rentals would lead to an additional $500 million in reduced economic activity. LAEDC's study also says the loss of film production in the Los Angeles area would mean more than 9,290 lost jobs, with annual earnings of nearly $395 million.

LAEDC only specifically names redbox in its news release and says the $1-per-day rental model puts the foundation of the film distribution industry at risk:  

Redbox's low-cost kiosks are challenging the traditional distribution and release model of the industry, which is built upon timed, sequential release into differentiated market segments through a variety of channels (box office, sell-through, rental, pay television and cable). ... Although box office numbers are headlined in industry and popular press, revenues from this income stream account for less than 25 percent of the total revenues earned by distributors. Most movies are not immediate money makers, and companies rely on sequential sales, such as in the home entertainment market, to recoup their production and marketing investment.

Redbox continues to be embroiled in litigation with several Hollywood studios that have imposed new release distribution delays of up to 30 days on the DVD-rental company. According to the Los Angeles Times, redbox even has amended its suits against 20th Century Fox and Warner Bros., alleging that the studios have imposed restrictions on the number of DVDs specific retailers can sell to any one individual. Redbox has made no secret of its "work-around" process — its employees frequent retailers such as Walmart, Target and Best Buy to purchase in bulk the new releases that have been delayed by studios.