Technology

Wal-Mart, Target Put Squeeze on Redbox


DVD buying limits at the leading retailers hurt movie-rental vendors Redbox and NCR's ability to secure a large supply of discs

Wal-Mart is boxing out Redbox. Wal-Mart (WMT), the world's largest retailer, has imposed strict limits on the number of DVDs any one customer can buy at a time, making it harder for movie-rental kiosks such as Coinstar's (CSTR) Redbox to get their hands on large numbers of newly released discs. The new rules took effect Feb. 1 and include a five-DVD cap on new releases, mirroring limits placed by Target (TGT) in December. Target's cap remains in effect for one week to several weeks after a movie is released to stores. Redbox and NCR (NCR) are among the largest U.S. operators of DVD-rental kiosks, which rent movies for about $1 a day and, according to Adams Media Research, are the fastest-growing distributors of movie rentals. Kiosk rental sales are expected to rise 42% to $1.3 billion this year, Adams says, stepping up competition vs. other rental services, including Netflix (NFLX), iTunes owner Apple (AAPL), and rental stores such as Blockbuster Entertainment (BBI), which in 2008 reached an agreement to let NCR rent movies under the Blockbuster Express brand. Limits at Wal-Mart and Target make it all the more urgent that Redbox and NCR find ways to buy DVDs directly from studios. "The more difficult it is for them to get product, the more motivation they have to reach an agreement with the studios," says Tom Adams, president of Adams Media Research. "It increases the pressure because it increases their costs." Customer Rationale

Before the limits, Redbox got about 40% of its new DVDs from retailers, Adams estimates. It and NCR, which operates DVDPlay and Blockbuster Express kiosks, also purchase DVDs directly from some studios. Redbox is in a legal tussle with studios that have refused to make new releases available on the day they become available for sale in stores. Retailers say they imposed the limits to avoid running short of new releases. "The idea is that our guests have access to the hot DVDs they want," says Target spokesman Joshua Thomas. Wal-Mart spokeswoman Melissa O'Brien says, "From time to time we have placed purchase limits on products at stores so that they can be accessible to as many customers as possible." Redbox last year reached agreements to distribute new DVDs on their release date from Sony Pictures Home Entertainment and Lions Gate Entertainment (LGF). Paramount Home Entertainment currently offers titles on a limited basis through Redbox; in exchange, Redbox agrees to destroy the titles once they are removed from its kiosks. Dispute with Studios

Redbox has sued Warner Home Video, Universal Studios Home Entertainment, and News Corp.'s (NWS) Twentieth Century Fox to try to force the studios to sell it new releases on the date the DVDs become available in stores. Limits by retailers may force Redbox to accept less favorable terms to resolve the disputes. "We understand that Wal-Mart was quoted as saying they would be implementing purchase restrictions," Coinstar and Redbox said in a statement. "We are currently evaluating this information." The company declined to elaborate, citing legal proceedings. Representatives of all three studios also declined to comment. For its part, NCR said it's trying to reach agreements with studios by mid-year. "We have the same challenges in securing DVDs" as Redbox, says Alex Camara, a general manager at NCR. "We are working closely with the studios to find a solution. My intention is to have agreements by spring [or] early summer." Redbox kiosks are located in more than 19,000 locations, including Wal-Mart, grocery stores, and McDonald's (MCD) restaurants. NCR's 4,000 kiosks are located in Safeway (SWY) and other stores.

With Ron Grover in Los Angeles.

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