By Chris Tribbey | Posted: 13 Oct 2008
ctribbey@questex.com

DVD rental kiosk operator Redbox has filed a federal suit against Universal Studios Home Entertainment, alleging the studio’s new revenue-sharing terms for vending machine operators violates antitrust laws and misuses copyrights.

Filed in U.S. District Court in Delaware Oct. 10, the suit claims Universal’s new terms for vending machines would “eliminate the low-cost rental alternative for consumers” by prohibiting Redbox from renting or selling Universal DVDs until 45 days after they first street; limiting the number of Universal DVDs the kiosk operator can stock; and requiring Redbox to destroy Universal DVDs after they leave the kiosks, instead of being sold as used to consumers.

“To drive home its ‘take it or leave it’ proposition, Defendants will terminate Redbox’s two distributors [Video Product Distributors and Ingram Entertainment] if they continue supplying Redbox with Universal DVDs or providing other services to Redbox — unless Redbox forsakes its customers and participates in Defendants’ attempts to decrease the supply of copyrighted DVDs, reduce consumer choice in the marketplace, and increase prices that consumers pay in tough economic times,” the suit reads.

In addition to Universal, Universal City Studios, Universal City Studios Productions and Focus Features are named in the suit.

Redbox is seeking an injunction that would prohibit Universal from limiting the number of its DVDs in Redbox kiosks, fiscal damages, and declarations of copyright misuse Universal, and that the revenue- sharing agreement violates antitrust law.

VPD and Ingram

The suit stems from an Aug. 26, 2008, visit to Redbox’s Oakbrook Terrace, Ill., headquarters by Universal VPs Jamie Guzzaldo and Dick Longwell. Redbox COO Mitch Lowe and other Redbox staff were shown a copy of Universal’s revenue-sharing agreement, and were told Redbox had until the end of the following day to sign the agreement, the suit reads.

“During the meeting, USHE said that if Redbox refused to sign the revenue-sharing agreement and the distributors continued to supply Universal DVDs to Redbox, USHE would stop selling any Universal DVDs to VPD and Ingram,” the suit reads.

Redbox purchases nearly its entire USHE product from VPD and Ingram, accounting for 15% of the total product the two supply to the kiosk operator, Redbox said. Redbox also has DVD buy-back clauses with both distributors. Redbox said USHE will “compel Ingram and VPD to stop shipping Universal DVDs to Redbox effective Dec. 1 …” if the kiosk operator doesn’t sign the agreement.

The agreement, if Redbox signs it, would limit the number of copies of a new Universal DVD to eight, with the amount tied to the gross box office revenue of the film. Redbox kiosks currently hold as many as 45 copies of a new release, and the company said that more than 60% of rental demand for a title occurs within 45 days of the original street date. The agreement would also call for Redbox to “destroy 100% of the units removed from an active rental machine,” instead of selling them used. Redbox currently sells used DVDs for $7 beginning a dozen days after the street date.

“The revenue-sharing agreement will have the effect of restricting output, eliminating competition in the rental and sales markets and raising prices to consumers,” the suit contends.

Reaction

A spokesman for Universal said he had not seen the suit and that the studio will not comment on pending litigation. Representatives from Ingram were not available late Monday, and a spokeswoman for VPD said she was not aware of the suit.

A spokeswoman for Redbox said the company had no additional comment on the specifics of the suit at this time, however she did say that Redbox “has not been contacted by other studios looking to change their distribution terms similar to Universal.”

“Redbox is taking action against Universal Studios Home Entertainment to protect its business model and to continue to offer consumers the latest new releases — when they are released — for just $1 per night,” she said.