Redbox $1 DVD Rentals Cost Hollywood $1 Billion? But How Many Discs Does Redbox Buy At Retail?

A new study has been published by the Los Angeles County Economic Development Corp that claims the one-dollar DVD rentals from Redbox kiosks have cost Hollywood one billion dollars, and that the economic fallout could get a lot worse as home video revenue losses spur job cuts and wipe out up to $400m in wages. I think it's time for studios to give Tommy Wiseau his first real big Hollywood gig — he could do ads parodying his famous cries from The Room, in protest of the DVD rental kiosks. "You are tearing me apart, Redbox!"

The study, which you can read in full on the LACEDC's website, cites Hollywood's reliance on exclusive windows of availability to justify different pricing for DVDs and distribution of revenue. In other words, the results are in line with studios like Fox, which want Redbox to be forced to wait at least a month after new DVD releases are on shelves before it can stock discs in kiosks. The irony here is that a model like that would be very much like the old retail model for VHS tapes, which studios happily disregarded when they realized they could make loads of cash with DVD at retail. Oops!

(Or, as the LACEDC's Gregory Freeman put it to THR: "The economics of the motion picture industry are based on exclusive release windows which allow price differentiation; that is, some earlier transactions take place at higher price points. Redbox, or any other distributor that weakens the release-window model, could reduce overall industry revenue. Lower revenue will likely lead to lower production activity, hurting the Southern California economy.")

Given the origin of the study, it's not unreasonable to guess that the Los Angeles County Economic Development Corp might be entirely bought and paid for by the motion picture industry. A perusal of the group's website shows, however, that it covers topics that only rarely touch directly on movie-related issues. Past reports cover topics like international trade and transportation — the stuff you'd expect an economic development group to deal wtih. The study was put in motion by an anonymous film industry labor union (IATSE would be the most obvious guess) which paid $20,000 to the non-profit LACEDC.

What the report doesn't allow for, however, is that Redbox might be buying at least some of its discs at retail.The LA Times and the Business Insider both report that Redbox has been buying large quantities of DVDs at retail. The releases primarily come from Fox, Universal and Warner Bros. — the three major studios with which the disc rental company is currently engaged in lawsuits. As those studios refuse to sell discs to Redbox, the company is reportedly buying them on the street to stock kiosks. The Business Insider passes along an anecdote that suggests Wal-Mart is selling the discs to Redbox at a great discount, but the report is unverified.