Bloomberg News

Warner Bros. Plan for DVD Rental-Delay Rejected by Blockbuster

January 12, 2012

(For more on the Consumer Electronics Show, see EXT3 <GO>)

Jan. 11 (Bloomberg) -- Warner Bros., leading a push to spur movie purchases by delaying the availability of DVD rentals, is running into resistance from two of its biggest customers.

Dish Network Corp.’s Blockbuster, the largest U.S. movie- rental chain, and Coinstar Inc., operator of the Redbox DVD kiosks, are pushing back against the Time Warner Inc. film unit’s efforts to make consumers wait 56 days before they can rent the latest releases. The current delay for Redbox is 28 days after a DVD goes on sale to the public.

Warner Bros. is calculating the potential gains outweigh the risk of alienating the retailers. While Netflix Inc. is going along, Blockbuster stores are buying the studio’s movies from others the day they go on sale and renting them to customers right away, according to a person with knowledge of the matter who wasn’t authorized to speak publicly.

“As a company that’s really not focused on new releases, Netflix doesn’t really care about a move from 28 days to 56,” said Eric Wold, a San Francisco-based analyst at B. Riley & Co. “For the other companies, new releases really dominate their rentals, so that kind of delay would really hurt them.”

Coinstar, which has an agreement with Warner Bros. that expires at the end of this month, hasn’t agreed to lengthen its 28-day window and has suggested it too may find alternatives.

No Revised Accord

“The current agreement Coinstar has with Warner Bros. is to receive movie titles 28 days after their release,” Marci Maule, a spokeswoman for the Bellevue, Washington-based company, said yesterday in an e-mail, reiterating earlier statements. “No revised agreements are in place.”

Coinstar, operator of more than 34,000 DVD-rental kiosks, has “workarounds” to obtain new releases if studios seek to impose a longer delay, Chief Executive Officer Paul Davis said on an Oct. 27 conference call.

Peter Binazeski, a Warner Bros. spokesman, said the company had no comment on talks with Blockbuster or Coinstar.

Comcast Corp.’s Universal Pictures, News Corp.’s Fox and Warner Bros. previously made deals with Coinstar and Los Gatos, California-based Netflix for a 28-day delay.

Netflix, the streaming and DVD rental service, agreed with Warner Bros. yesterday to double the period to 56 days.

The longer window is part of an effort at Warner to get customers to buy movies rather than rent them, Mark Horak, president of Warner Home Video North America, said yesterday in the statement announcing the Netflix deal.

U.S. consumer spending on home-video entertainment fell 2.1 percent to $18 billion last year, the seventh straight annual decline, according to the industry-backed Digital Entertainment Group.

Rental Stores

Rental revenue at stores like Blockbuster tumbled 28 percent, the DEG said. Purchases of DVDs fell 20 percent, the DEG data suggest, while spending on Blu-ray discs gained 20 percent to $2 billion. Kiosk rentals, led by Redbox, grew by 31 percent, the DEG said.

Another part of the strategy, Horak said, is to promote UltraViolet, a technical standard that allows consumers to buy movies online from multiple sources and watch them on a variety of devices, including TVs, computers and smartphones.

Amazon.com Inc., the largest Internet retailer, announced yesterday at the Consumer Electronics Show in Las Vegas that it is rejoining the UltraViolet initiative and will make films purchased by consumers accessible on its Kindle Fire tablet.

Netflix probably is getting a reduced price on DVDs in return for waiting longer, Wold said. Before Netflix started its streaming business, new releases accounted for about 30 percent of customer requests, he said. That percentage probably declined when streaming was introduced.

“They always push consumers toward catalog titles anyway,” Wold said.

Dish, which bought Blockbuster out of bankruptcy in April, gained 0.3 percent to $28.88 yesterday at the close in New York. Coinstar advanced 2.3 percent to $44.18, while Time Warner added 0.4 percent to $36.97. Netflix declined 2.4 percent to $95.83.

--Editors: Rob Golum, Anthony Palazzo

To contact the reporters on this story: Michael White in Los Angeles at mwhite8@bloomberg.net; Edmund Lee in New York at elee310@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net


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