If you've gone shopping, you're probably familiar with Redbox. Located in grocery stores, malls, or department stores, the automated video rental kiosks offer a limited selection of popular films for a dollar per night, far less than the price of most video rentals. The DVDs in the machines are purchased wholesale from distributors that buy directly from studios, and are resold once the rental period is over.
Universal Studios Home Entertainment, however, is looking to change this, as they have allegedly given Redbox an ultimatum: Either Redbox accepts a revenue-sharing deal with Universal, or Universal stops selling to Redbox's wholesalers, Video Product Distributors and Ingram Entertainment. Worse, the deal could restrict the number of Universal DVDs that could be stocked in a kiosk, impose a 45-day delay on renting new releases, and require Redbox to destroy, not resell, used DVDs.
In response, Redbox has filed suit against Universal and three of its affiliates, alleging “copyright misuse, two violations of the Sherman Anti-trust Act, and interfering with the retailer's contractual relationships.”
While this would not be the first time that Universal has pushed revenue-sharing, its usual goal is to make video rental more, not less, appealing to retailers. Nearly ten years ago, for example, Universal offered supermarkets a revenue-sharing deal designed to keep the stores from dropping video rentals.
Ironically, Redbox's kiosks, which usually share profits with the stores hosting them, have accomplished just that. Universal's current plan, however, seems intended only to cut into kiosk rentals, while increasing opportunities for more profitable retail or traditional rental sales. The 45-day delay on renting new videos, for example, is anathema to Redbox’s business strategy, which depends on renting a small number of recent movies cheaply and quickly.
As pointed out on Content Agenda, the Redbox/Universal lawsuit is reminiscent of the video rental disputes of the 1980s, which established the right of buyers to, according to the first-sale doctrine, rent or resell a purchased copy of a work without the rights holder's permission. In this case, Redbox may argue that preventing the company from purchasing DVDs except under Universal's revenue-sharing agreement is a misuse of Universal's copyright, if copyright is being used to secure a monopoly on the product, and is interfering with their previous contracts with Ingram and VPD.
It is unclear, however, how far this legal action will go. As the rights holder, Universal is entitled to control its sales of its own product, and is within its rights to refuse to sell through wholesalers. If the suit fails and Universal cuts off the suppliers, Redbox will still be able to purchase DVDs off the shelf and rent or resell them without stipulations from Universal.
No matter what the outcome of this case, it is disappointing to see Universal use its copyright to prevent the otherwise fair rental and resale of DVDs, and to stifle a business model that provides consumers with cheap and convenient access to entertainment. For more coverage, check out the Electronic Frontier Foundation’s take on the issue here.