Could Redbox Crowdsource Its Way Around Movie Studio Blockades?

from the connecting-with-fans dept

Last week, we wrote about the legal battle Redbox is facing with some of the movie studios. Redbox, of course, rents DVDs at a $1/rental from vending machines that it places all over the place. Some of the studios are upset that (a) they don't get a cut of each rental and (b) that Redbox also sells those DVDs. So they've been trying to force Redbox to sign agreements that would give them a royalty cut and which would put limitations on Redbox -- such as not renting out videos until well after the DVDs are released and also having the company destroy, rather than sell DVDs when they were done renting them. Of course, the labels don't have much of a legal claim here. Redbox has every right to buy DVDs and to then rent them (right of first sale and all that). But, what at least some of the studios have done is to demand that DVD wholesalers not sell to Redbox, which certainly seems like a typical restraint of trade situation. In at least one case, a studio has also told downstream retailers, like Walmart and Best Buy not to sell to Redbox either.

Now, you might think that Redbox could just send employees into those stores without saying where they're from, but those stores probably don't carry enough stock for Redbox to buy enough DVDs efficiently. But what if they did something different? In the comments to that post last week, our rather insightful community started suggesting ways that Redbox could get around the sales blocks from studios by crowdsourcing the acquisition of movies.

There were a few different suggestions on how this could work, but the basic idea, presented by commenter "McBeese" laid out the basics:

• Consumers open online accounts with Redbox. The account contains a Paypal id for deposits.
• Redbox publishes how many copies of each DVD that they want.
• Joe Consumer buys the movie, watches it, and then logs in to the Redbox site and 'pledges' the DVD. Each pledge automatically reduces the amount of a particular DVD that redbox is seeking.
• Joe consumer mails in the DVD with an associated pledge number. When the DVD is received, the agreed amount is deposited into Joe Consumer's account.

A little slower than buying in bulk, but unstoppable.

I'd argue that rather than paying the user for it, Redbox could just credit their account for a certain number of free rentals. Then, not only does Redbox get these movies, but it builds up an even more loyal userbase... with really no significant way for the studios to block this out. There are some things that are tricky about this -- including verifying that the purchased DVDs are what they say they are, and coming up with a way to accurately handle the inventory management, but it is creative, and it shows that as much as the studios want to think they can control this market, there's always going to be some way around their restrictions.

38 Comments | Leave a Comment..

Looking At The Redbox Antitrust Fight

from the is-it-an-antitrust-issue-or-not? dept

Law.com has a nice article detailing the legal issues involved in the battles between Redbox and the various movie studios. The main question is whether or not it's an antitrust violation on the part of the studios to block distributors, wholesalers and retailers from selling DVDs to Redbox. The studios want (a) a revenue share from Redbox (b) Redbox not to offer new release DVD movies for rental and (c) Redbox not to sell used DVDs. The reasons are pretty obvious: Redbox is a much more competitive offering. Since it's a lot less labor intensive, it's able to offer the DVDs for much less (both rental and sale), and the movie studios are freaking out, because in their minds, their old revenue streams should never be allowed to decrease.

The statements from the studios on the dispute is incredibly disingenuous:

"The real complaint is Fox won't sell DVDs to Redbox on the terms Redbox demands, and that is not in our view an antitrust violation," said Watson, an antitrust expert who has teamed with Yosef Riemer, a litigation partner in Kirkland & Ellis' New York office, in representing Fox, part of News Corp.'s Fox Filmed Entertainment. "There's nothing in the law, antitrust or otherwise, that says a seller must sell its product at the price that the buyer demands on the date the buyer demands and through the distribution channel that the buyer demands."

Indeed, Watson is correct that no seller needs to offer the product at the price the buyer demands, but that's not what's being disputed here at all. Clearly, prior to Fox and some of the other studios throwing their hissy fit, the distributors had no problem selling DVDs to Redbox at the prices Redbox thought were reasonable. The studios sold the movies to the distributors at the usual price, and the distributors sold them to Redbox at the usual price. Everyone should be happy.

But... what happened now is that these studios (Fox, Universal and Warner Bros.) told not just the distributors (Ingram and Video Product Distribution) but also retailers like Best Buy and Wal-Mart to not sell to Redbox. That's restraint of trade. The studios have every right not to sell videos to whomever they want -- but those distributors and retailers can then sell to whomever they want. The studios should have no say in the downstream sales of the videos once they've been sold to the distributor, wholesaler or retailer. That's where the antitrust issue is. The studios are successfully controlling downstream sales.

The studios are either being disingenuous or are just playing dumb when they claim that there's no antitrust violation because end users can still rent movies from Blockbuster or Netflix. But, that's defining the wrong "user" for the market in question. The market is in being able to buy from the distributor/wholesaler, and the "customer" is a retailer like Redbox. And these studios have stopped that customer from being able to make a perfectly legitimate purchase. That's the antitrust issue, and it's amazing that the studios think anyone will believe their false market definition or this bizarre claim that this about Redbox demanding some special price. It's not. Hopefully the judge recognizes that and doesn't fall for the studios simply making stuff up.

46 Comments | Leave a Comment..

Is There Any Innovation That Hollywood Won't Try To Kill?

from the can-you-say-moral-panic? dept

It's well known how the MPAA tried to kill of the VCR (well, Betamax, originally), with Jack Valenti declaring: "The VCR is to the American film producer and the American public as the Boston Strangler is to the woman alone." As William Patry's new book details, Valenti and the MPAA have been masters of creating moral panics -- bogus, hyped up threats to make legislative response seem not just palatable, but desired -- that do nothing more than try to protect an old, decaying business model from innovative competition. Given that history, it's worth pointing out that it appears to be happening again with Redbox, the DVD vending machine business, that's taken the video rental market by storm. We've covered this story since last fall, when NBC Universal tried to figure out a way to stop Redbox from renting its movies. It gave Redbox a long list of ridiculous ultimatums, and told distributors not to sell to Redbox. In return, Redbox sued Universal. Since then, 20th Century Fox and then Warner Bros. joined in. Sony and Paramount are the only studios enlightened enough to do deals with Redbox.

But, that hasn't prevented the moral panic lobbying/promotional campaign from gearing up -- though, at least some appear a bit skeptical about it. The NY Times has an article that goes through the details and notes that Hollywood lobbyists have been working over time to convince the press to complain that Redbox rents R-rated movies to children. And they're also trying out some ridiculous claim about how Redbox is going to put studio plumbers out of work. Seriously. But, just you wait and see. It won't be long until articles start appearing claiming that Redbox kiosks are a threat to our children, since they can rent R-rated movies (the fact that these same kids can access whatever websites they want in the privacy of their own homes, with content much more graphic than any R-rated movie probably won't be mentioned).

But, of course, that's purely a moral panic -- and one that Patry even predicted in his book. What Hollywood and its lawyers are really worried about is that they don't get the same monopoly rents on pricing of DVDs. Once Hollywood got over its totally bogus fear of the VCR, it eventually embraced the idea of "windows." It's basically an attempt to do what economists call differential pricing -- where different people pay different amounts for the same basic product (or perhaps in slightly different forms). Classic differential pricing is a good thing in economics, if done right, because you can actually better optimize the market -- selling expensive (high margin) goods to those who will buy them, but making additional money on lower priced/lower margin goods to those further downstream, thus (in theory) maximizing profit.

Hollywood's version is a bit mucked up, of course, because it often will seek to abuse its monopoly position to squeeze excess rents out of the market with the government helping it -- and thus it freaks out when any sort of innovation (the internet, rental kiosks) come along. The real fear is that by introducing $1 rentals as soon as the DVD is released, it will cut into DVD sales (why buy at all when it's so cheap to rent?) and rentals from places like Blockbuster, who have worked out revenue sharing deals with the studios. So, once again, rather than compete in the market, Hollywood's lawyers are trying to convince the press and politicians that Redbox DVDs are "a threat to your children." But this is the exact same sort of "folk devil" that Patry describes Hollywood trumping up with every kind of technological innovation. Hopefully, we're smart enough not to fall for it this time.

46 Comments | Leave a Comment..

Hollywood's War With Redbox Expanding To Netflix As Well?

from the shooting-the-foot dept

Hollywood really never learns, does it? Following 20th Century Fox's decision to try to stop Redbox from getting movies to rent via its kiosks (to which Redbox has responded by suing Fox), Warner Bros. has joined in as well, but isn't just trying to stop Redbox, but Netflix, too. It wants to force both companies not to rent DVDs until a month after the DVDs are actually released... unless the companies agree to share revenue from the rentals.

There's basically no legal basis for this move, which would only serve to piss off consumers (yet again). These companies are free to buy the DVDs and rent them out, but the studios want a cut of every rental. It's sort of like video game makes demanding a cut of every used game sale, or an artist demanding a cut every time a piece of his artwork is sold. It's entitlement society all over again. Nothing should happen without the original company getting paid. What they don't realize is how this limits them. Netflix and Redbox become less interested in promoting Warner Bros.' movies, because they're now a lot more expensive to those companies. Instead, Hollywood is handing incentives over to these companies to promote other films that don't demand their tithe.

58 Comments | Leave a Comment..

Fox The Latest Studio To Declare War On Redbox

from the not-a-good-idea dept

It was just a few days ago that Mark Cuban was singing the praises of Redbox as the perfect model for movie distribution, claiming that the movie studios loved it, because they pay the studios a minimum guarantee with no returns. Cuban claims that this is a no-risk deal for studios who get pure incremental revenue. That didn't read right to me, because it was just a few months ago that it seemed like Universal Studios was doing everything it possibly could to kill Redbox. And, now, Mark alerts us to the news that 20th Century Fox is also demanding wholesellers not sell to Redbox. In fact, the article notes that Redbox only has a deal with Sony. It purchases all the movies from other studios through wholesale middlemen -- which seems to contradict Cuban's claims. Either way, this is a story of the movie studios letting their own greed interfere with innovation. These movies are being legally purchased. It's difficult to see how the studios have any leg to stand on in preventing Redbox from using their movies in its service. Isn't there a First Sale right somewhere?

25 Comments | Leave a Comment..

Two Companies That Should Know Better Shut Down Helpful 3rd Party Apps

from the bad-news dept

Having just pointed out how multiple train operators are using intellectual property laws to shut down helpful third party apps, we're seeing a number of stories about other companies doing something similar. First up is Last.fm, which has apparently started blocked a bunch of third party apps that had been using undocumented calls to stream content from Last.fm. Last.fm (now owned by CBS) was in a bit of a quandary, because its licenses with the major record labels (there they go again, blocking innovation) forbid streaming except in specific circumstances -- so these third party apps "broke" the agreement. But... that's not quite true, because the agreements are between Last.fm and the labels, not the third parties. Last.fm has now specific requirement to block others from creating apps. So, yes, Last.fm has every right to do this, and I'm sure the labels were demanding it do this, but it still doesn't make it a very smart move. Those third party apps were making Last.fm more valuable. Blocking them hurts the overall value and pushes people to go in search of other services that are more consumer friendly.

This move also comes right after Last.fm's recent decision to charge for streaming outside of the US, Germany or the UK. This also has folks up in arms -- and is driving away users in droves to other solutions. Last.fm has plenty of competitors out there, and working hard to make its own service less usable and less reasonable isn't going to help keep users around.

Meanwhile, a bunch of folks have sent in the story of how DVD rental kiosk operator Redbox has pressured a third party to takedown its Redbox iPhone app. The app was apparently pretty cool, making use of the phone's GPS to tell you where the nearest kiosk is, and letting you reserve the movie you want. There is some speculation that Redbox is upset that the app also pulls a list of promotional codes, allowing some people to rent movies for free -- but that's a misguided concern. If that's the real issue, then they should just change how their promotional codes work because (of course) the codes are still available for anyone to search and use online. Shutting down the iPhone app doesn't fix that at all.

Still, it seems that both companies should know better. Having third parties build apps that make your services more useful is a sign of success, and should be encouraged, not threatened and shut down. We live in an age where too many people focus on using intellectual property as a club to block any use -- even when those uses are helpful in making your core product even more valuable.

12 Comments | Leave a Comment..

Redbox Gets Bought: Another Success For Good Service At A Good Price

from the doing-things-the-right-way dept

Redbox, the company that rents DVDs out of automated kiosks for $1 per night, has been bought for up to $176 million by its biggest investor, Coinstar. It was hard to dislike Redbox: the company was having a lot of success in a space where other companies hadn't, by creating a convenient and easy to use service that delivered at a great price. Plus, anything that gets Hollywood's knickers in an enormous twist generally is pretty good. Universal Studios, in particular, tried to hamper Redbox through threats leading to lawsuits (update: clarified that Redbox filed the lawsuit... in response to a threat from Universal), perhaps hoping to kill the company off before launching rental kiosks of its own. But rather than try to destroy Redbox, Hollywood (and plenty of other people) should learn from it: the way to success isn't by putting all sorts of obstacles in the way of your customers' happiness, it's by providing them a service they want, delivered in an easy way, with a lot of value.

Carlo Longino is an expert at the Insight Community. To get insight and analysis from Carlo Longino and other experts on challenges your company faces, click here.

9 Comments | Leave a Comment..

Universal's War On Redbox Continues

from the innovation?-attack! dept

You'd think that movie companies would like it when people want to rent and watch their movies -- but surprise, surprise, only if it's on their terms. Universal has been fighting, for some time, with Redbox, the company whose kiosks rent DVDs for $1 per night, trying to get the company to sign a contract that would hamper its business model, while working on rental kiosks of its own. The WSJ is reporting that Universal asked a court to toss out Redbox's lawsuit over the contract last week, and that Redbox had to resort to "new acquisition strategies" in order to get a hold of the recent Universal release Wanted. Redbox wouldn't elaborate on those strategies, but it sounds as if Universal and its distributors cut the company off, as the studio had threatened. So once again, we're left with a company that's innovated in the movie space and delivered a product to consumers in a way they like, at a price they love. But since it didn't come from a movie studio, Universal wants to cut the company off. Once again, it's puzzling exactly how Universal can think that keeping people from seeing its movies can be good for its business.

Carlo Longino is an expert at the Insight Community. To get insight and analysis from Carlo Longino and other experts on challenges your company faces, click here.

26 Comments | Leave a Comment..

Why Universal Wants To Kill Redbox: It's Launching Its Own DVD Kiosks

from the competition-through-lawsuit dept

It did seem a little odd that Universal Studios was trying to bully Redbox into an agreement that would kill off the DVD vending machine company. After all, having Redbox out there renting some movies (which it paid for) certainly seems better than it not even being an option. Initially, we just chalked it up to Universal trying to make sure it had more control over the rental market -- but a bunch of readers this morning are pointing out that there may be a much more direct reason. It turns out that Universal Studios is launching its own DVD kiosk system. Initially, it's in the UK, but it's likely there are plans to offer them in the US as well. So now the ridiculous "take it or leave it" bullying threat from Universal Studios to Redbox makes a lot more sense: it was designed to force a competitor out of business so Universal could have the market to itself.

18 Comments | Leave a Comment..

DVD Rental Kiosk Patented... Redbox Sued

from the sue-away dept

In 1998 I worked with a company that was trying to deliver CDs and (eventually) DVDs via rental kiosks. At the time, the idea was hardly new. In fact we've detailed the long list of failed companies who got into the kiosk business over the last few decades. But, apparently, they all had the wrong strategy. What they should have been doing is suing over patent infringement. We were just talking about Redbox, one of the few companies that's made a successful go of DVD kiosks, and its lawsuit against Universal Studios, but it appears that the company is now being sued for patent infringement as well, by a company called DVDplay. The patent itself seems to cover a disc-based kiosk that's connected to the internet. Reading through the claims, it's difficult to see how there wasn't any prior art on this stuff or that it wasn't an obvious iteration on what had come before. But, really, what does that matter once you've got a patent and you can just sue away?

43 Comments | Leave a Comment..

Hollywood Again Tries To Stop Innovation: Threatening Redbox DVD Rentals

from the felony-interference-with-a-business-model dept

I have to admit that when I first heard about the whole Redbox concept of renting DVDs from a kiosk I was skeptical, but that was mainly because previous experiments had all been quite expensive with very limited selection. However, in actually offering super cheap prices ($1 rentals), I've been hearing from many Techdirt readers who swear that Redbox is fantastic and, at such a cheap price, often easier than downloading the movie.

So, wouldn't you know it? Hollywood is trying to block Redbox from doing business.

The company has filed a lawsuit against Universal Studios for trying to coerce the company into signing a ridiculous, business-destroying agreement -- and threatening to try to stop others from supplying Redbox movies if the company didn't agree. Specifically, Universal wanted Redbox to agree to:

• wait 45 days after a DVD's release date before renting it;
• pay a royalty of 40% of gross rental revenues;
• promise that prices never dip below $0.99 per night; and
• destroy all previously rented DVDs rather than offering them for purchase for $7, as Redbox currently does.

In other words, Universal Studios is basically trying to kill off Redbox, a company that has innovated in its business model, and, in doing so, effectively trying to circumvent the first sale doctrine by controlling how a copyrighted product can be resold. Universal threatened that if Redbox did not agree to these business-destroying clauses, it would stop supplying movies to any distributor who supplies Redbox. Effectively, that would mean that those distributors would stop supplying Redbox, rather than lose Universal as a supplier. This is, quite clearly, a case of corporate bullying. It's also yet another example of how the movie studios want to stop any innovation in the industry that doesn't come directly from the studios.

85 Comments | Leave a Comment..