Paramount jumps on Redbox bandwagon

Deal slated to run until the end of the year

It’s official: With Paramount Pictures signing what could be the richest deal yet with the $1-per-night kiosk operator, the current tally stands at four studios for Redbox, three against.

Redbox and Paramount have signed a trial revenue-sharing deal under which the studio will make its DVD releases available on street date through 2009. If the deal sticks, Redbox will pay Paramount about $575 million over the five-year term, with a guaranteed market share of 18.5% for Paramount titles in Redbox kiosks, almost double the 10% share studio has in the overall rental market, according to Rentrak.

Deal potentially reps 25% more revenue than Redbox’s biggest contract to date – a $460 million, five-year pact that gives Sony 19.9% share in Redbox kiosks.

The studio will receive detailed rental data from Redbox, which it will use in conjunction with its DVD sales data, to evaluate whether to continue with Redbox. Paramount has the right to extend the deal through 2014, with an out clause after two years, according to a Coinstar filing with the SEC

“We’re in a unique position,” Paramount Pictures vice chairman Rob Moore said, pointing to the caliber of product the studio has coming to DVD in the fourth quarter, including “Transformers: Revenge of the Fallen,” “Star Trek” and “G.I. Joe.” Moore sais those titles, plus Paramount’s track record of delivering tentpoles, gave it the leverage to negotiate an arrangement in which the studio didn’t have to make an initial commitment to Redbox but still has the option for a longer — and highly lucrative — deal.

The output deal covers all Paramount titles, including live-action films from DreamWorks, but not titles from DreamWorks Animation, Moore said.

As part of the deal, Redbox will also destroy used rental inventory, rather than redistributing it for eventual sale to consumers.

Cheap, used DVDs are a huge sticking point with the studios because they compete with new DVD sales. Some studios also believe that the $1-per-night rentals provided by kiosks cannibalize new-DVD sales, leading to a movement by some to institute a later window on kiosk rentals.

“This agreement is a positive step with Paramount,” Redbox president Mitch Lowe said. “The agreement ensures that our customers will have increased access to some of the biggest titles of the year.”

Sony Pictures Home Entertainment and Lionsgate recently signed deals to distribute titles directly to Redbox. Walt Disney Studios Home Entertainment also provides its titles to the kiosk operator.

Warner Home Video, 20th Century Fox Home Entertainment and Universal Studios Home Entertainment, which are trying to impose a delayed window on 30 days or more on kiosk rentals, are being sued by Redbox.

Between Sony, Paramount, Lionsgate and Disney, Redbox has street-date agreements with studios that account for about 40% of the U.S. DVD rental market during the first half of the year, according to Rentrak. Warner, Fox and Universal together also account for about 40% of the rental market.

Earlier this month, Coinstar said Redbox more than doubled its second-quarter revenue from a year earlier after almost doubling its number of kiosks to almost 18,000 and boosting sales per machine by 33%.

Kiosks will account for almost 30% of DVDs rented within the next year, up from 19% for the first half of this year, NPD Group said in a new report released this week. Blockbuster and other video rental stores make up 45% of the DVDs rented, and subscription services, led by Netflix, have a 36% share, NPD said.

In the first half of the year, U.S. consumer spending on DVD and Blu-ray rentals rose 8.3%, according to Rentrak, while disc sales fell 13.5%.

Marcy Magiera is the editor in chief at Video Business. VB reporter Danny King contributed to this report.

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