Wednesday, August 12, 2009

D2R ???

Lines are drawn in the sand... Forces put on the alert.


Redbox, the company that rents DVDs through kiosks for $1 a day, has had a polarizing effect on the movie industry.

The latest salvo in this brawl happened yesterday when Redbox filed suit against 20th Century Fox in response to the studio’s recent attempt to prevent new release movies from reaching Redbox’s kiosks. Last week, Fox imposed a window with its wholesalers that prevented the sale of discs to Redbox during the first 30 days of a title’s release. This isn’t the first attempted studio shutout that Redbox has had to deal with. In October of last year, Redbox filed a similar suit against Universal Studios Home Entertainment over its attempt at creating a 45-day window between a title’s release and when it was available on Redbox.

Why the ruckus? Some studios believe that the $1 rental price destroys the value of a film and hurts revenue from DVD rentals and sales. Why pay $4.50 to rent a movie when you can grab it at the grocery store for just a buck?

[Who are the idiots out there paying $4.50 for a rental? Seriously, I want to kick them]

But not every studio is fighting Redbox. Disney supplies it with new release titles, and both Sony and Lions Gate recently signed distribution deals with the company. According to an SEC filing from Redbox, the Sony agreement was valued at $460 million over the next five years, and Lions Gate said that its deal would generate $200 million to $300 million over the next five years.

The studios’ moves both for and against Redbox illustrate just how powerful the company has become. Redbox will have 22,000 kiosks across the continental U.S. by the end of this year, and generated $389 million in revenue last year. USA Today writes:

Redbox pays about $18 for a DVD and rents it about 15 times at an average of $2 per transaction. The company sells half of the used DVDs back to wholesalers for as much as $4 per disc, and sells about 3 percent directly to consumers for about $7. It destroys most of the rest.

Redbox has grown so powerful that Netflix considers the company its biggest competitor.

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Scenario:

I have the job of being the first Direct-2-Redbox supplier. I supply them with a movie guaranteed to rent - a pulp movie - at $18 a disc? For at least a 22,000 disc order? Domestic only?

$396,000 - gross profit.

$150,000 - production costs

$10,000 - marketing design and promotion (domestic only)

$22,000 - authoring, replication and shipping of discs.

$10,000 - legal and incidentals

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$104,000 profit for N. American DVD rights. (+/- $30,000 based on order, price per unit)

Still have all international rights to sell. Still have TV, and VOD rights to sell. And after the discs are destroyed at the end of the agreement - you retain rights to fulfill orders direct from a website.

And then of course, there's still merchandising.

Now if I set up an operation where I'm doing this 4x year....well, you do the math.

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I'm not saying it will work every time. There will be some movies that will be dogs. Some that will do well domestically, but crap out in the international market or vice versa. This is the model we were discussing here.

The more you do. The better, more efficient you become. The better, more responsive to your audience you are. A bunch of eggs, different baskets. Fewer worries if you break an egg.

Now get out there and make your own media.

1 comment:

Michael Field said...

Dammit! And I had to go make a web series first instead of a low budget movie!

Need to start writing again.

Good stuff.