Redbox, Warner strike deal to avert lawsuit

LOS ANGELES (Reuters) - Warner Bros has struck a deal with Redbox to let the rental-kiosk chain buy and rent out its new movie titles 28 days after their DVD release, settling a lawsuit the fledgling company filed against the Hollywood studio last year.

The deal grants Redbox access to Warner DVDs, which had been suspended amid the legal dispute, at lower cost. Shares in Coinstar Inc, which controls Redbox, climbed almost 7 percent in after-hours trade.

Redbox's president told Reuters on Tuesday that the distribution deal allows Redbox to focus on countering and pursuing lawsuits against two other studios that have cut off DVD supplies, accusing them of anti-competitive practices.

Under the deal, Redbox pledged to delay renting Warner Bros DVD titles for 28 days from when they are released, starting in March.

In return, Redbox will be able to get DVDs from Warner Bros at a reduced cost, since it will no longer have to buy them at retail stores, and the price will reflect the 28-day delay.

Warner Bros and other studios accused Redbox of undercutting DVD sales values by renting them for $1 a day at its network of 22,400 bright-red kiosks.

The agreement is meant to quell Warner Bros' concerns about DVD sales, and it brings the rental kiosks in-line with mail service Netflix Inc, which last month agreed to a 28-day delay on Warner Bros new releases.

Since last year, when Warner Bros, News Corp's Twentieth Century Fox and General Electric Co's NBC/Universal cut off DVDs to Redbox, the company has done what it calls a "workaround" and bought DVDs at retail stores.

In recent weeks, the studios gained an advantage on Redbox when major retailers, including Wal-Mart Stores Inc, limited new-release DVD sales to five per customer.

Redbox sued the three studios in August, accusing them of anti-trust violations. Redbox President Mitch Lowe told Reuters those suits against Fox and Universal will continue.

ONE DOWN, TWO TO GO

Together, the trio of studios released about 40 percent of the major movies Redbox has sought to buy for its kiosks. The company's agreement with Warner Bros ends its dispute with the largest supplier, Lowe said.

"This is a big deal, because it represents the biggest studio out there," Lowe said in an interview.

He added that the agreement will cut in half the percentage of major movies Redbox must get through its "workaround." In a conference call on Tuesday, Coinstar executives said they expect its share of DVDs from Warner Bros to represent nearly 15 percent of all the movies Redbox acquires in 2010.

"It allows us to focus our workaround on the other two studios, where we've been very effective," Lowe said.

Separately, Lowe said that by the end of 2010, the company plans to expand to more of its kiosks a trial program of renting video games.

As part of the new agreement, which is set to run through January 2012, Redbox can now acquire Warner Home Video titles at a reduced cost. It also agreed to destroy the studio's DVDs following their lifespan in kiosks.

Kevin Tsujihara, the president of Warner Bros Home Entertainment Group, said in a statement that the 28-day window with Redbox enables the studio to "get the most from the sales potential" of its DVDs.

Redbox has previously signed distribution agreements with Sony Corp's Sony Pictures, Lions Gate Entertainment Corp and Viacom Inc's Paramount Pictures.

In a separate statement, Coinstar forecast first-quarter earnings of 8 cents to 14 cents a share. Analysts were expecting the company to earn 26 cents a share, according to Thomson Reuters I/B/E/S.

The company expects revenue of $315 million to $335 million, the top end of which beats Wall Street estimates of $328.8 million.

Coinstar shares were up 6.9 percent in after-hours trade on the NASDAQ at $29.

(Additional reporting by Deepti Govind in Bangalore; Editing by Bernard Orr)