LOS ANGELES: The sharp growth of Redbox, which markets movie rentals for just $1 (€0.70; £0.60) a day via vending machines in supermarkets and fast-food outlets, is worrying some of the big Hollywood film studios, which have already seen full-price sales of DVDs drop 13.5% this year.
Redbox expects to have 22,000 vending machines in place by the end of the year, including a growing presence in supermarket giant Wal-Mart.
Three big studios, 20th Century Fox, WarnerBrothers and Universal, are currently being sued by Redbox for refusing to supply the company with new DVDs until at least 28 days after they have arrived in video stores.
Sony Pictures and Paramount have signed distribution deals with the company, which now accounts for 19% of the rental market along with its vending rivals such as DVDPlay and MovieCube.
Disney also permits its third party distributors to deal with Redbox, although it does not have a direct relationship.
The studios opposed to Redbox are backing action by video store operators who claim that such vending machines will destroy their businesses.
“These machines are to the video industry what the internet was to the music business,” says Ted Engen, president of the Video Buyers Group, a trade organisation for 1,700 local stores.
The VBG accuses Redbox of renting R-rated movies to under-age viewers, as the machines simply ask customers to confirm that they are 18 or over via a touch screen.
Sony and Paramount, however, see Redbox and its rivals as a way of growing their businesses, with Sony signing a five-year deal, and Paramount set to do the same if its current four-month trial is successful.
And rivals like Blockbuster are set to follow in Redbox's footsteps. The high street market leader already has 500 Blockbuster Express machines and expects to open a further 7,000 in 2010.
Redbox is the brainchild of current president MitchLowe, 56, who first had the idea with VHS tapes in 1982. But his company Video Droid failed because people then were not happy using credit cards for casual transaction and the cumbersome tapes broke easily.
Redbox, once owned by McDonald's, is now part of the Coinstar empire. Coinstar began with coin-counting kiosks in supermarkets and now offers a range of services through its kiosks.
Data sourced from New York Times; additional content by WARC staff