Universal Studios Demands Cut of DVD Kiosk Revenue 'or Else'

Tells Redbox that if doesn't sign a "revenue sharing agreement" that it will cut off its distributors supply of Universal DVDs.

We always hear Hollywood carrying on about how its trying to innovate and satisfy the demands of consumers, but once again we see this couldn't be further from the truth. Following the efforts by the MPAA to make sure you can't back up purchased DVDs comes word that Universal Studios is targeting Redbox DVD rental kiosks.

Redbox rents and sells DVDs to consumers through automated, self-service kiosks located across the US in locations such as McDonald's, where it began in 2002 — as well as other retail, pharmacy and grocery store locations across the country. In fact, the company surpassed Blockbuster Inc. in number of US locations in 2007, and reached the 100 million rental mark in February 2008.

Redbox has created an efficient means of providing consumers with low-cost, easily accessible same-day-release DVDs and what happens? Hollywood comes along and wants a cut of its business model "or else."

On August 26th, 2008 representatives s from Universal Studios Home Entertainment (USHE) visited Redbox HQ in Oakbrook Terrace, Illinois and told them they had until the close of business the following day by which to sign a "Revenue Sharing Agreement." USHE also 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 beginning December 1st. In other words, sign the deal or we cut off your supply.

Under the guise of a "Revenue Sharing Agreement" Universal Studios wants to do the following:

• prohibit Redbox from renting or selling Universal DVDs until after 45 days
  
  from when they otherwise become available to the public;


• limit the number of copies of Universal DVDs that Redbox kiosks can stock;


• require that Redbox ultimately destroy all of its copies of Universal DVDs so that previously-viewed DVDs cannot be sold at a low price to
  
  consumers;


• pay a royalty of 40% of gross rental revenues.

Redbox even notes how USHE’s affiliates, the co-defendants Universal City Studios Productions and Universal City Studios, have said in other litigation: “Studios have worked hard to create distribution channels that: (a) provide consumers with choices about how they wish to access entertainment programming at different price points for different time periods and different

purposes; and (b) allow us, as content owners, to earn revenues depending on how consumers choose to access that programming.”

But, now that consumers have chosen how to "access that programming" we see a studio coming along and wanting to change how it earns its revenue, and also threatening to cut off their access if their demands are not met. What's the point of businesses creating innovative methods for Hollywood to sell their DVDs if they'll ultimately be forced to give Hollywood a share of their revenue if it becomes successful?

"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," notes Fred von Lohmann of the Electronic Frontier Foundation. "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."

It's extortion at best.