FIRST READ - THE REDBOX SAGA

FIRST READ

As a follow-up to a previous CTC Report - "Redbox Battles Hollywood" - the Redbox story continues to provide a perfect example of my long-held premise that it is distribution and not content that is King in the digital domain. And, like Redbox, it is the unpredicted, unforeseen distribution game changers which provide the dynamic impact (re: music - iTunes, publishing - Kindle, communications - Twitter).

Since last reported, Redbox is flooding Walmarts, McDonald's, 7-Elevens and Supermarkets with video kiosks renting the latest DVDs for $1 per day, and continues to put Hollywood studios and video rental giants - Blockbuster and Netflix - in a tizzy.

Last week, USA Today reported that Redbox will have 22,000 kiosks in all 48 mainland states by year end. That equates to over 150 million people passing within 10 feet of one of their locations each week and a predicted doubling of their DVD rental revenue to $780 million in 2009.

Redbox works on the premise of consumer convenience. No membership is required. Renters can return DVDs to any location, can use a website to see what movies are in stock at any kiosk and can reserve a selection at a particular kiosk. Needless to say, the Redbox model is not good for the Hollywood studios. Chase Carey, President of News Corp. and parent of Fox Entertainment stated, "Our DVD product rented at a dollar is grossly undervalued. It is a real issue. And we're actively determining how to deal with it." If consumers figure it's only worth $1 to view a movie at home - instead of the $4.50 or so charged by rental chains and video-on-demand - then it could "cripple the economics of today's movie business" where home video rentals and sales account for half of Hollywood studios' revenue.

As we previously reported, Universal Pictures was the first to fight by insisting Redbox wait 45 days after a DVD is released before renting it. Redbox sued claiming Universal was guilty of violating antitrust and copyright laws. Fox followed, by instructing video wholesalers to wait 30 days before selling its new releases to Redbox. But, in what is very apropos for Hollywood, the studios are divided. For example, Disney is supplying new releases and Sony has agreed to a 5 year contract with Redbox on the condition that Redbox destroy all used DVDs. Lionsgate has also signed a 5 year deal. "It's difficult to fight against a consumer trend like this," says David Bishop, President of Sony Pictures Home Entertainment.

And, just today, the Wall Street Journal reported, that Warner Bros. (with a struggling DVD business) announced it will be selling DVDs to kiosk vendors (read Redbox) directly vs. thru wholesalers and stipulating that all DVDs sold to kiosk vendors cannot be placed in kiosks for 28 days. But the studios are fighting a losing battle. For as with Universal's 45 day exclusion Redbox can side-step Warner's restriction by purchasing DVDs at retail.

Redbox has changed the entire video-rental game - it was an unforeseen and unpredicted game changer. Hollywood controls worldwide movie distribution only because movies are on film, once movie exhibition converts to digital that control will be lost. Could Hollywood be that stupid?

CTC FALL TRAINING PROGRAMS

What a great segue. The Redbox saga vividly points out the rapid changes that can occur in any industry and why it is so very important that each exhibitor keep up-to-date with the goings-on in the cinema industry. One very easy and inexpensive way to do this is by attending or sending staff to CTC for training (and knowledge). CTC is where you'll get the latest information and learn the most current trends and technology impacting movie exhibition. Sign up now for the upcoming September workshops - call 800-448-1656.

eBOOK WARS BEGIN - ANOTHER DISTRIBUTION BATTLE

The paper book is under siege as electronic (digital) publishing grows - in the U.S. ebook sales hit a record month high in June at $14 million, a 136% increase over June '08 results.

Amazon's Kindle leads the pack but other ereading devices are on its heel. Last week, Sony (which sells ebooks under its Reader brand) announced it will market two new, less expensive devices (one selling for just $99) and that it was dropping its price for new book releases and best sellers to $9.99. Later in '09, it will begin selling another reader that (like the Kindle) will allow users to buy ebooks wirelessly.

However, the bigger scoop is that Sony, in partners with Adobe, will sell ebooks only in the ePub format (an open standard but one which restricts how often ebooks can be shared and copied). Sony, Adobe, and the publishing industry want to avoid the rampant piracy they fear will occur as ebooks proliferate and also prevent Amazon from doing a replay of Apple's "lock-in" domination of the digital music business. For its part, Amazon is introducing versions of the Kindle software for the PalmPre and other reading devices while Apple (not to be left out) will shortly be introducing a tablet computer that will also function as an ebook device.

When will Hollywood learn that the digital domain is their worst nightmare.