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Coinstar Slides On Worries Over The Redbox “Workaround”

December 7, 2009, 12:23 pm

Originally posted by Eric Savitz - Baronn's - December 3rd, 2009

If you are going to operate a nationwide chain of video rental kiosks, you need a way to get the videos to rent.

That’s the basic conundrum facing Coinstar (CSTR), as Hollywood studios attempt to limit the access of the company’s Redbox DVD rental kiosks to new releases. Redbox rents movies for a dollar a day; the studios think that practice hurts their ability to sell copies of new DVDs. Conistar has filed suit against Warner Home Video and 20th Century Fox - a separate suit on similar grounds targets NBC Universal - asserting antitrust, copyright misuse and tortious interference claims, and seeking to block the attempts of the studios to stop Redbox from renting new titles for the first several weeks after their release at retail outlets.

In addition to seeking legal redress, Coinstar has attempted a “workaround,” which means they go out and buy copies of the movies they want at retail. Last month, the company noted on a conference call with the Street that in some cases it can’t get as many copies of new releases as it would ideally like.

In an 8-K filing with the SEC today, the company noted that certain Walmart (WMT), Best Buy (BBY) and Target (TGT) stores have informed Redbox field representatives that they are limiting sales of new-release DVDs to as few as three copies.

“Although Redbox continues to encounter these types of challenges to its workaround strategy of procuring new-release DVDs, many third party locations, including Walmart, Best Buy and Target locations, have continued to sell new-release DVDs to Redbox without those limitations,” they report in the filing. “However, there can be no assurance that Redbox will be able to obtain new-release DVDs in sufficient quantities or on financially advantageous terms or that attempts to restrict its new release DVD purchases will not be more widespread.”

And that certainly would be a problem; no one is going to the local Redbox kiosk to rent copies of Ishtar or Plan 9 From Outer Space.

CSTR today is down 83 cents, or 3.3%, to $24.32.
Disclosure: Like 20th Century Fox, Barron’s is a unit of News Corp.

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