October 27, 2008 | By Fred von Lohmann

Hollywood Menaces DVD Rental Kiosks

Hollywood's distaste for disruptive innovation isn't limited to software products like RealDVD. Now it is targeting DVD rental kiosks, like the Redbox kiosk pictured here.

The idea couldn't be simpler, or the innovation more pro-consumer: Redbox makes DVD rental kiosks that rent authentic, Hollywood DVDs. It's just like Blockbuster, only without the trappings of the store, which means kiosk vendors can do it cheaper, quicker, and in more places. Simple $1 per night DVD rentals. Brilliant.

Hollywood apparently doesn't see it that way. According to a lawsuit filed by Redbox, the Universal Studios family of companies have demanded that Redbox sign a "revenue sharing agreement" that would require Redbox to:

  • wait 45 days after a DVD's release date before renting it;
  • pay a royalty of 40% of gross rental revenues;
  • promise that prices never dip below $0.99 per night; and
  • destroy all previously rented DVDs rather than offering them for purchase for $7, as Redbox currently does.

What if Redbox refuses? Universal Studios allegedly threatened to cut off the distributors (Ingram and VPD) who sell Universal DVDs to Redbox. I'm guessing this threat is meant to get Redbox cut off by its distributors -- obviously, Ingram and VPD aren't going to be thrilled to lose all of their other customers over the Redbox account.

This is a breathtaking attack on the first sale doctrine, which makes it crystal clear that once you've bought a DVD, you can rent and resell it at any price and on any terms you like. Universal Studios apparently would prefer a world where millions of DVDs are shredded and put in landfills to one where consumers can rent a DVD for $1. (Although this is an improvement over its former corporate sibling, Universal Music Group, which believes that throwing promo CDs away is illegal.)

Hat tip to Paul Sweeting at ContentAgenda, who brought this story to light.

CC licensed photo by Eddie Does Japan

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