NEW YORK Redbox is talking with video game developers about offering their products in its DVD kiosks and hopes to avoid the kind of resistance it encountered from some Hollywood studios, Redbox's president said on Wednesday.
Time Warner's (TWX.N) Warner Bros, News Corp's (NWSA.O) Twentieth Century Fox and General Electric's (GE.N) NBC Universal have cut off Redbox's access to their DVDS, accusing the company of undervaluing potential DVD sales by renting them for $1 a day.
"We are talking early and often with the content providers of games so that we start out with a much better understanding of what we're doing," Mitch Lowe, president of Coinstar Inc's CSTR.O Redbox, said at the Reuters Global Media Summit in New York.
He did not say which video game developers Redbox was talking with, but said the company has been conducting trials since August in Reno, Nevada, and Wilmington, North Carolina, to provide games through kiosks at $2 a day.
Brian Farrell, CEO of video game maker THQ Inc THQI.O, said he would consider allowing Redbox to rent out THQ games, which include franchises such as "Saints Row."
"If you look at movies and music in some ways, resisting new business models has not been a great formula for success, so one of the things I like about our industry is we tend to think, 'We have to adapt to this change.' So it's part of our DNA," Farrell told the Summit.
Redbox has sued Warner, Universal and Fox on antitrust grounds.
"I think this is all a big misunderstanding that has been caused by the poor economy," Lowe said. "Had the economy been healthy, had Blu-ray been adopted at a faster rate, we wouldn't be in this situation."
Redbox has had to scour retail outlets for DVDs from the three studios with which it is embroiled in the lawsuit, which Lowe said has added to the company's costs.
He said that means that on a major release, such as Warner Bros' hit comedy "The Hangover," Redbox will face a delay in getting the title to its kiosks after buying it at the beginning of the week at retail outlets.
"If you're the kind of person that needs it on Tuesday, Wednesday or Thursday, there's going to be a very limited supply. Because we're buying at retail it does take us several days, we have to package them, we have to prep them and then distribute them out to the kiosk," he said.
Lowe said Redbox is considering ways to branch out from its core offering of DVDs, but said the DVD format has at least a 10-year life span despite the digital transition currently under way in Hollywood.
Redbox has more than 17,500 locations, which amounts to more than 20,600 kiosks because some locations have more than one machine.
When it comes to expansion, Lowe said that if the growth of DVD kiosk locations in the company's densest urban market was replicated across the country, it would come to 60,000 sites.
"That's not a number that we think is the right number, but at least it gives us some guidance that we're far from tapping out that number," he said.
Redbox has grown rapidly from just a dozen locations five years ago, when it was started by McDonald's Corp to drive foot traffic to its restaurants.
Meanwhile, even as it faces competition from Blockbuster Inc BBI.N, which plans to have 10,000 DVD rental kiosks by the end of 2010, Redbox has no immediate plans to increase its marketing spending.
"We're spending all that money that we would spend on marketing and advertising on figuring out ways to make the service even more enjoyable, more reliable," Lowe said.
As Blockbuster looks to build out its kiosk network in states such as New York, Lowe said Redbox has room to grow in the northeast region of the United States, and also in Florida.
The company is studying price increases for its rentals, and it also plans sell DVDs through its kiosks.
"We think we can be a big seller of movies," Lowe said.
For the third quarter of 2009, Coinstar reported DVD revenue of $198 million, up 90 percent from the same period a year earlier.
(Additional reporting by Sue Zeidler; Editing by Tiffany Wu and Steve Orlofsky)