Looking At The Redbox Antitrust Fight

from the is-it-an-antitrust-issue-or-not? dept

Tue, Oct 20th 2009 4:07pm — Mike Masnick

Law.com has a nice article detailing the legal issues involved in the battles between Redbox and the various movie studios. The main question is whether or not it's an antitrust violation on the part of the studios to block distributors, wholesalers and retailers from selling DVDs to Redbox. The studios want (a) a revenue share from Redbox (b) Redbox not to offer new release DVD movies for rental and (c) Redbox not to sell used DVDs. The reasons are pretty obvious: Redbox is a much more competitive offering. Since it's a lot less labor intensive, it's able to offer the DVDs for much less (both rental and sale), and the movie studios are freaking out, because in their minds, their old revenue streams should never be allowed to decrease.

The statements from the studios on the dispute is incredibly disingenuous:

"The real complaint is Fox won't sell DVDs to Redbox on the terms Redbox demands, and that is not in our view an antitrust violation," said Watson, an antitrust expert who has teamed with Yosef Riemer, a litigation partner in Kirkland & Ellis' New York office, in representing Fox, part of News Corp.'s Fox Filmed Entertainment. "There's nothing in the law, antitrust or otherwise, that says a seller must sell its product at the price that the buyer demands on the date the buyer demands and through the distribution channel that the buyer demands."

Indeed, Watson is correct that no seller needs to offer the product at the price the buyer demands, but that's not what's being disputed here at all. Clearly, prior to Fox and some of the other studios throwing their hissy fit, the distributors had no problem selling DVDs to Redbox at the prices Redbox thought were reasonable. The studios sold the movies to the distributors at the usual price, and the distributors sold them to Redbox at the usual price. Everyone should be happy.

But... what happened now is that these studios (Fox, Universal and Warner Bros.) told not just the distributors (Ingram and Video Product Distribution) but also retailers like Best Buy and Wal-Mart to not sell to Redbox. That's restraint of trade. The studios have every right not to sell videos to whomever they want -- but those distributors and retailers can then sell to whomever they want. The studios should have no say in the downstream sales of the videos once they've been sold to the distributor, wholesaler or retailer. That's where the antitrust issue is. The studios are successfully controlling downstream sales.

The studios are either being disingenuous or are just playing dumb when they claim that there's no antitrust violation because end users can still rent movies from Blockbuster or Netflix. But, that's defining the wrong "user" for the market in question. The market is in being able to buy from the distributor/wholesaler, and the "customer" is a retailer like Redbox. And these studios have stopped that customer from being able to make a perfectly legitimate purchase. That's the antitrust issue, and it's amazing that the studios think anyone will believe their false market definition or this bizarre claim that this about Redbox demanding some special price. It's not. Hopefully the judge recognizes that and doesn't fall for the studios simply making stuff up.

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

Filed Under: antitrust, dvds, rental
Companies: 20th century fox, ingram, redbox, universal, video product distribution, warner bros.

48 Comments

If you liked this post, you may also be interested in...

Reader Comments

Subscribe: RSS

View by: Time | Thread

www.eZee.se (profile), 20 Oct 2009 @ 4:16pm

Price...
I'm pretty sure i read an article a little while back (just cant remember where) that quoted red box as saying that worse comes to worse, they would buy the movies at retail prices but were not going to cave to the studios demands.

That pretty much cuts out the studios spin on "special prices" doesn't it?
[ link to this | view in thread ]
Mike Masnick (profile), 20 Oct 2009 @ 4:23pm

Re: Price...
I'm pretty sure i read an article a little while back (just cant remember where) that quoted red box as saying that worse comes to worse, they would buy the movies at retail prices but were not going to cave to the studios demands.

Right, but the article notes that the studios have convinced *retailers* not to sell to Redbox also, which seems to go way over the line. I mean, I guess Redbox employees could walk into Best Buy and buy up the DVDs there, but I'm guessing that just buying at the local retail store doesn't give Redbox enough DVDs to fill its vending machines.
[ link to this | view in thread ]
Anonymous Coward, 20 Oct 2009 @ 4:39pm

Redbox could set up a "we pay you $x extra per dvd" model where you send end a newly bought DVD and they send you the cost + $x. A bit more cash and time consuming, however it would work most likely
[ link to this | view in thread ]
ChurchHatesTucker (profile), 20 Oct 2009 @ 4:44pm

Re: Re: Price...
Where is Redbox based, and how much is commercial real estate there?
[ link to this | view in thread ]
Lucretious, 20 Oct 2009 @ 5:00pm

Naive question here:

Doesn't Redbox or any rental outfit (Blockbuster, etc) require a licensing agreement and royalty payments to the studios?
[ link to this | view in thread ]
Anonymous Coward, 20 Oct 2009 @ 5:00pm

CHT,

Redbox is a subsidiary of Coinstar and their headquarters i located in Oakbrook Terrace, Illinois. Sorry, can't help you on the price of commercial real estate.

:)
[ link to this | view in thread ]
www.eZee.se (profile), 20 Oct 2009 @ 5:12pm

Re:
I could be wrong, but from what i know i think this is covered by the US's first sale doctrine, as long as they dont make a copy of it and give out the actual original disk they are fine (like a library).

(Anybody) Feel free to correct me if i got this wrong.
[ link to this | view in thread ]
PrometheeFeu (profile), 20 Oct 2009 @ 5:16pm

Yeah... If Redbox came out and offered money for DVDs, I would go to wherever and purchase DVDs then resell them to Redbox for a small profit...
[ link to this | view in thread ]
McBeese, 20 Oct 2009 @ 5:18pm

Great idea
That's a great idea! Redbox could crowdsource their DVDs. It could be as simple as this:

1. Consumers open online accounts with Redbox. The account contains a Paypal id for deposits.

2. Redbox publishes how many copies of each DVD that they want.

3. Joe Consumer buys the movie, watches it, and then logs in to the Redbox site and 'pledges' the DVD. Each pledge automatically reduces the amount of a particular DVD that redbox is seeking.

4. Joe consumer mails in the DVD with an associated pledge number. When the DVD is received, the agreed amount is deposited into Joe Consumer's account.

A little slower than buying in bulk, but unstoppable.
[ link to this | view in thread ]
Fred McTaker (profile), 20 Oct 2009 @ 5:21pm

Re:
"Doesn't Redbox or any rental outfit (Blockbuster, etc) require a licensing agreement and royalty payments to the studios?"

They could probably work out a contract like this if it's to their benefit, like early release access and (in the case of Blockbuster) special edits (i.e. more G rated cuts and dubs).

Based on the studios' reactions to RedBox's business model, I'm guessing they are sticking with good ol' First Sale Doctrine (FSD). This means if they buy the disc outright rather than "licensing" it (which is a B.S. concept unless you're licensing reprint/resell rights) they can use it as they please, including renting and selling used discs with impunity.

IIRC, Autodesk fought an eBay seller who was using FSD to resell boxes of their software that he found in garage sales, and they lost because FSD legally trumped their EULA. FSD is even more clear-cut when applied to retail media.
[ link to this | view in thread ]
www.eZee.se (profile), 20 Oct 2009 @ 5:23pm

Re: Re: Price...
[quot]"Right, but the article notes that the studios have convinced *retailers* not to sell to Redbox also, which seems to go way over the line. I mean, I guess Redbox employees could walk into Best Buy and buy up the DVDs there, but I'm guessing that just buying at the local retail store doesn't give Redbox enough DVDs to fill its vending machines."[/quot]

Mike, I was not knocking you or the article in anyway-I do get the point of how the studios are trying to control the entire chain (kind of like one of my aunts who used to give me pocket money when i was a kid... and then tell me how to spend it - if the studio was my aunt she would be holding my hand and making sure i spent it only on "approved" items at "approved" shops at approved dates), was just asking if Redbox saying so, doesnt it knock the wind out of the sails of the studios special prices argument, who say one of the three issues is RB wants special pricing?

As for buying at the local retail store, i think RB would be very popular if they came up with a campaign of: "Buy at your local store, then sell us the "2nd hand" dvd at full purchase price (or $1 less) - valid for the first 100 people in your area"

Just a thought ;)
[ link to this | view in thread ]
Fred McTaker (profile), 20 Oct 2009 @ 5:25pm

Redbox in my area!
This article lead me to discover that there's already 10 RedBoxes within a 10 mile radius of my home. If Netflix is ever taking too long with my queue, maybe I'll try out Redbox instead. I hope the studios know that they're doing nothing more than advertising RedBox now. An Anti-Trust ruling against the MPAA/members would be icing on the cake!
[ link to this | view in thread ]
mjb5406 (profile), 20 Oct 2009 @ 5:25pm

Re: Re: Re: Price...
Redbox is in Oakbrook Terrace IL, and is a division of Coinstar. What on earth does commercial real estate value have to do with the studios' bullshit arguments?
[ link to this | view in thread ]
ervserver (profile), 20 Oct 2009 @ 5:26pm

Redbox
why don't the studios come up with their own vending machines, they could easily kick Redbox butt by releasing movies much earlier.
[ link to this | view in thread ]
ChurchHatesTucker (profile), 20 Oct 2009 @ 5:31pm

Re: Re: Re: Re: Price...
"Redbox is in Oakbrook Terrace IL, and is a division of Coinstar. What on earth does commercial real estate value have to do with the studios' bullshit arguments?"

Nothing, but it has everything to do with my HellaSuperBlockBusterMegaVideo Store that will soon open in IL.
[ link to this | view in thread ]
mjb5406 (profile), 20 Oct 2009 @ 5:32pm

Re:
Back when this all started, reps from Universal Studios Home Entertainment (USHE) waltzed into Redbox's headquarters and demanded (1) a percentage of each rental, (2) Redbox's agreement to not sell used copies and (3) some delay (can't remember the number of days) before they could rent new releases. They gave Redbox something like 72 hours to comply, at which time USHE told Ingram and VPD to stop selling to Redbox. Another word for this kind of control of downstream sales is "extortion". Basically, Blockbuster and the other brick & mortar rental chains pay the studios a percentage of each rental, so a single copy can make the studio a lot more profit than if that copy were simply sold. Now, call me a conspiracy theorist, but it wouldn't surprise me if Blockbuster or some other chains weren't somehow behind this, too, in an effort to kill off the cheaper competition.
[ link to this | view in thread ]
mjb5406 (profile), 20 Oct 2009 @ 5:35pm

Re: Redbox
First, they couldn't rent for $1 a night, because that would destroy their weak argument that Redbox "devalues" a movie by their cheap pricing. Second, Universal is already testing that in Europe, where Redbox doesn't exist. So, the theory is that they want Redbox gone here so they can monopolize the market. Why would you want to support those greedy studio bigwig bastards anyhow?
[ link to this | view in thread ]
www.eZee.se (profile), 20 Oct 2009 @ 5:36pm

Re: Re:
"Now, call me a conspiracy theorist, but it wouldn't surprise me if Blockbuster or some other chains weren't somehow behind this, too, in an effort to kill off the cheaper competition."

You dirty conspiracy theorist!

:)

No seriously, thats a pretty good take/angle that i had not thought of... and that makes sense. Make me a tinfoil hat if you decide to get one, because I'm with you on this.
[ link to this | view in thread ]
mjb5406 (profile), 20 Oct 2009 @ 5:36pm

Re: Re: Re: Re: Re: Price...
Well, as I mention in another post, it wouldn't surprise me at all if Blockbuster was part of the studios' cospiracy, too.
[ link to this | view in thread ]
Jesse, 20 Oct 2009 @ 6:24pm

If you can't come up with a strong argument against the issue at hand, then argue against something else.
[ link to this | view in thread ]
JB, 20 Oct 2009 @ 6:40pm

Re: Redbox
We could go to the grocery store and see a row of vending machines, one for each movie studio.
[ link to this | view in thread ]
wvhillbilly (profile), 20 Oct 2009 @ 8:04pm

Restraint of trade?
I tried a while back to purchase a used copy of Wall-E on DVD at a local video rental store, and they told me Disney did not allow them to sell used Disney DVDs.

Would this constitute restraint of trade?
[ link to this | view in thread ]
net625, 20 Oct 2009 @ 9:45pm

Re: Restraint of trade?
yes, and I think Block buster tried to go after redbox and mike wrote about it but I forgot the how and exact y of what blockbuster did. Also their are "red box's" at every Walgreens where I live.
[ link to this | view in thread ]
Falindraun (profile), 21 Oct 2009 @ 3:39am

Re: Redbox
Right and when you return a movie late you'll get a court summons and they will try to sue you for $1.6B.
[ link to this | view in thread ]
Bri (profile), 21 Oct 2009 @ 5:47am

Re: Re:
Even without the extortion charge this is a pretty clear cut case that multiple studios are colluding to affect pricing differently for certain retailers. That's quite clearly illegal.
[ link to this | view in thread ]
Anonymous Coward, 21 Oct 2009 @ 6:02am

The biggest problem with Redbox is that most of them (that I've seen) are in the lobby at Wal Mart next to the Sam's Cola machines and the claw crane game, and poeple stand and stare at it like the monolith from "2001: A Space Odyssey" because they can't grasp the concept. I stood behind a young couple who made no fewer than six attempts to return a DVD to the Redbox machine before I gave up and left. Considering there are only FOUR ways to put the DVD in the case and then the case into the machine, this pretty much sums up the problem: idiot consumers.
[ link to this | view in thread ]
Anonymous Coward, 21 Oct 2009 @ 6:13am

is any one suprised by this??
the doctrine of first sale is getting stomped on and obliterated
[ link to this | view in thread ]
Michael, 21 Oct 2009 @ 6:34am

Collusion is the Name of the Game
Some great comments here.

I believe most of the comments are right in on believing that there is some serious collusion going on here between the studios, traditional rental outlets like "Blockbuster", and other industry groups like VBG.

If you take a look at some recent posts on Inside Redbox, you will see exactly what is going on. In a recent post I called out VBG for astroturfing on my site in some very underhanded ways. (see this post) And that is only the tip of the iceberg.

The movie studios clearly didn't learn the lesson of the music industry, and so are doomed to repeat their failure to adapt. Does it really cost them less money to have to deal with lawsuits and loss of public trust than to just learn to adjust their business to changing technology?

I think a lot of heads are going to continue to roll at the studios until someone figures this out. There are already some who DO get it, like Dreamworks Animation (see what Jeffrey Katzenberg had to say).

It's time to stop fighting the future, studios.

Michael
[ link to this | view in thread ]
Michael, 21 Oct 2009 @ 6:34am

Collusion is the Name of the Game
Some great comments here. I believe most of the comments are right in on believing that there is some serious collusion going on here between the studios, traditional rental outlets like "Blockbuster", and other industry groups like VBG. If you take a look at some recent posts on Inside Redbox, you will see exactly what is going on. In a recent post I called out VBG for astroturfing on my site in some very underhanded ways. (see this post) And that is only the tip of the iceberg. The movie studios clearly didn't learn the lesson of the music industry, and so are doomed to repeat their failure to adapt. Does it really cost them less money to have to deal with lawsuits and loss of public trust than to just learn to adjust their business to changing technology? I think a lot of heads are going to continue to roll at the studios until someone figures this out. There are already some who DO get it, like Dreamworks Animation (see what Jeffrey Katzenberg had to say). It's time to stop fighting the future, studios. Michael
[ link to this | view in thread ]
Anonymous Coward, 21 Oct 2009 @ 7:29am

Can't Redbox just set up a shell company whose sole purpose is to buy DVDs from distributors and resell them to Redbox?
[ link to this | view in thread ]
hegemon13, 21 Oct 2009 @ 7:57am

Re: Redbox
I disagree that they could "kick Redbox butt." The Redbox rental experience is pretty awesome, in my opinion. It's not just a vending machine. It is a huge, connected, nationwide network. You can check online to find out which machines have the movie you want in stock, and you can reserve it for later pickup. You can rent a couple movies in one city, let your kids watch them for the eight-hour car trip, and return them at your destination. If there is a problem renting a movie, expect an email from Redbox with free rental codes. Sometimes, you won't even have to call or email them. If you do, their customer service is very friendly and sympathetic.

People predicted that Blockbuster would kick Netflix' butt when they got into online rentals. That, uh, didn't exactly happen, did it? The fact is, Redbox has brand recognition, happy customers, extremely competitive prices, and an already-established network. It would be very difficult for anyone, even the studios themselves, to take on Redbox, and with the studios' anti-customer philosophies, they don't stand a chance.
[ link to this | view in thread ]
hegemon13, 21 Oct 2009 @ 7:59am

Re: Restraint of trade?
No, that would be a specific leasing contract.

Restraint of trade would be if a person or company (like Redbox) purchased a Disney DVD outright, and Disney tried to tell them they could not resell it.
[ link to this | view in thread ]
Kyote (profile), 21 Oct 2009 @ 10:08am

Re: Re: Re: Re: Re: Re: Price...
LMAO I think what he means is 1)He'll open a store with all the video's Redbox will want/need. 2)He'll order and sell to them all they want. 3)He'll get nice and rich AND help keep Redbox's right to innovate.
[ link to this | view in thread ]
Kyote (profile), 21 Oct 2009 @ 10:21am

Re: Re: Redbox
LMAO I love it!
[ link to this | view in thread ]
Kyote (profile), 21 Oct 2009 @ 10:26am

Re: Re: Redbox
You also get to meet your neighbors and get to know them. Not to mention some neighborly comments on already rented movies and recommendations of something new to watch you might not have considered already.

Netflix and Redbox *thumbs up*
[ link to this | view in thread ]
Anonymous Coward, 21 Oct 2009 @ 10:45am

ReTweet and dig things like this guys. With such social networking tools we can help both Techdirt AND companies like Redbox in their goals if we simply use the tools we already have. I ReTweet anything thats worth the extra couple clicks.
[ link to this | view in thread ]
Anonymous Coward, 21 Oct 2009 @ 11:38am

Re: Great idea
"4. Joe consumer mails in the DVD with an associated pledge number. When the DVD is received, the agreed amount is deposited into Joe Consumer's account."

Not only that, but you can even offer the customers *more* value than they're paying for the DVD without actually paying anything out simply by offering them free rentals: Buy Redbox a DVD worth $20 and get $30 worth of free rentals.
[ link to this | view in thread ]
Grew (profile), 21 Oct 2009 @ 2:33pm

insideredbox is a sham site
Recently I was on the site "insideredbox" and I was reading some of the recent post. I'm not excactly sure where they get their information from but I am sure that their facts are incorrect. Obviously the guy who runs the site has an interest in redbox it's just a shame that they are not bound to at least verify what they are posting.
[ link to this | view in thread ]
Anonymous Coward, 21 Oct 2009 @ 4:47pm

Re:
Maybe they've been on People of Wal-Mart.
[ link to this | view in thread ]
Anonymous Coward, 21 Oct 2009 @ 4:47pm

Re: insideredbox is a sham site
Gee, how specific of you.
[ link to this | view in thread ]
Willton, 21 Oct 2009 @ 7:50pm

Fox lawyer not being disingenuous
Good post, but there is one, big, honking problem with your post:

But... what happened now is that these studios (Fox, Universal and Warner Bros.) told not just the distributors (Ingram and Video Product Distribution) but also retailers like Best Buy and Wal-Mart to not sell to Redbox. That's restraint of trade.

Indeed it is, but Redbox has not alleged that Fox has engaged in such activity. The Law.com article says as much. Hence, there is nothing disingenuous about what Fox's attorney said. You need to get better at RTFA.
[ link to this | view in thread ]
Mike Masnick (profile), 21 Oct 2009 @ 10:28pm

Re: Fox lawyer not being disingenuous
Hi Willton,

Indeed it is, but Redbox has not alleged that Fox has engaged in such activity. The Law.com article says as much.

Help me out here, because this is the section of the article in question:

"When Redbox refused the offer, VPD and Ingram, under direction from Universal, refused to fill Redbox's orders for Universal DVDs on Dec. 1, according to court papers. Redbox claims that Universal then expanded its campaign into a "group boycott" that now includes other wholesalers and retailers, such as Best Buy Co. Inc. and Wal-Mart. Some of these companies have canceled orders or limited the number of DVD copies they provide to Redbox.

"Defendants' true purpose in seeking to impose the Revenue Sharing Agreement is to eliminate choice," Redbox argues in its court papers.

Redbox makes similar claims in subsequent suits against Fox and Warner Home Video.

Redbox sued Fox on Aug. 11 after the studio ordered Ingram and VPD to stop sending Redbox newly released DVDs. Redbox had rejected a blackout period of 30 days."

That looks like Recbox alleged exactly what I said. Which part of TFA did I R incorrectly?
[ link to this | view in thread ]
Grew (profile), 22 Oct 2009 @ 7:28am

these lawsuits are a joke
The only things these lawsuits are is a negotiating tools for redbox. That's half the reason they filed them on the other side of the country just to make it inconvienent for the studios. The suits themselves are actually pretty petty. They are trying to show restraint of trade and they must prove 4 parts to that. I have a hard time believing that they will even be able to show 1 part of it much less 4. Just because redbox alledges that Universal interviened with wally and best buy doesn't mean it actually happened or that they can prove it, it's just an allegation. The other two suits with warner and fox have no merit whatsoever and should be dismissed around the 1st of the year.
[ link to this | view in thread ]
Willton, 22 Oct 2009 @ 9:35am

Re: Re: Fox lawyer not being disingenuous
That looks like Recbox alleged exactly what I said. Which part of TFA did I R incorrectly?

This part:

"In their motions to dismiss, Fox and Warner Home Video attempt to distinguish between their actions and Redbox's complaint against Universal. Unlike Universal, Redbox did not accuse them of organizing a "group boycott" that involves retailers such as Best Buy and Wal-Mart. That means, Watson said, that Redbox could have a more difficult time arguing that no alternative means exist of obtaining newly released DVDs."

Redbox's complaints against Fox and Warner are not the same as its complaint against Universal. If you had read the entire article, you probably would have figured that out. It's possible that Fox has engaged in the same group boycott behavior, but if that were the case, then I'd be very curious as to why Redbox has not alleged such conduct in its complaint against Fox.

Perhaps you did not misread TFA so much as you did not RTFA in its entirety. Either way, this should be a teaching moment for you. Your economic analysis of the group boycott is spot on, but you raced to bad-mouth the lawyer without understanding all of the facts. Color me disappointed.
[ link to this | view in thread ]
Anonymous Coward, 22 Oct 2009 @ 11:02am

Re: Re: Restraint of trade?
No, that would be a specific leasing contract.

Restraint of trade can exist along with contracts. You can't "write your own law" using contracts.
[ link to this | view in thread ]
VBG Larry, 23 Oct 2009 @ 6:44pm

More lies from Inside Redbox money man
Looks like Michael is trying to use this site to make more money off of Redbox users.

What a leech.
[ link to this | view in thread ]
John Mitchell (profile), 29 Nov 2009 @ 9:09pm

Re: Re: Re: Price...
No, no license is required for the retailer that owns the copies. That has been the law since 1909, before we even had consumer copies of movies, and was most recently reiterated in Section 109(a) of the Copyright Act of 1976. Popularly known as "the first sale doctrine," it provides that the owner of a legal copy can dispose of possession of that copy without the copyright owner's consent.
[ link to this | view in thread ]
Anonymous Coward, 11 Dec 2009 @ 10:26am

Re: Re:
They could probably work out a contract like this if it's to their benefit, like early release access and (in the case of Blockbuster) special edits (i.e. more G rated cuts and dubs).
You forgot about the other "special feature" on Blockbuster discs -- extra unskipable trailers and ads.
[ link to this | view in thread ]