Lions Gate seals DVD distribution pact with Redbox

(Agencies)
Updated: 2009-08-12 09:37

LOS ANGELES – Lions Gate Entertainment Corp reached a deal to distribute its DVDs through Coinstar Inc's Redbox kiosks, weeks after Sony struck a similar pact in a sign of their growing acceptance by Hollywood.

Lions Gate thinks that the Redbox deal will help its business by getting its DVDs in front of people when they are more likely to make impulse buys, and would not hurt its traditional DVD sales.

The five-year deal with Redbox -- which rents DVDs from more than 17,000 bright-red automated kiosks at grocery stores and other storefronts across the United States -- should generate about $200-300 million in revenue over its lifetime, said Lions Gate President Steve Beeks.

The independent film studio's pact with Redbox follows in the footsteps of Sony Corp, which sealed a deal with the kiosks company last month.

Many Hollywood studios believe the chain's $1 rentals are hurting rental revenue and DVD sales.

Redbox sued General Electric Co's Universal in October after the studio told some wholesalers to stop supplying titles to Redbox within 45 days of release. Universal countersued.

Last week, News Corp's Twentieth Century Fox hinted on a conference call that it sided with Universal.

"Obviously there's been some lines drawn," said Beeks. "The industry is very divided."

His comments came during a conference call on Tuesday to discuss the company's first-quarter financial results, which it published on Monday.

RBC Capital Markets David Bank said Lions Gate was taking a smart approach toward Redbox.

Beeks said the agreement with Redbox will eliminate the problem of low-priced previously viewed DVDs now being sold into the market, which dilutes overall prices.

While he did not offer details, Redbox agreed in its deal with Sony not to sell used Sony DVDs into the marketplace.

COST CONTROLS

Shares of the company -- which has been under pressure from billionaire Carl Icahn to cut costs -- rose 2 cents, or 0.3 percent, to $6.48 on the New York Stock Exchange.

Lions Gate on Monday posted a higher than expected profit, citing strong performances at its television production arm, TV Guide partnership and at Mandate Pictures, home to hit films "Juno" and "Drag Me To Hell".

Lions Gate reported a first-quarter net profit of $36.3 million, or 30 cents a share, compared with a year-earlier profit of $3.5 million, or 3 cents a share.

Excluding a gain on extinguishment of debt, Lions Gate posted a profit of 21 cents per share for the quarter ended June 30. On that basis, analysts were expecting a loss of 1 cent per share, according to Reuters Estimates.

Revenue rose 30 percent to $387.7 million in the quarter.

Piper Jaffray analyst James Marsh said in a note that he was impressed with the positive growth momentum in television as well as strong cost controls.

It also said it was on track to achieve its previous forecast for $75 million in adjusted earnings before interest, taxes, depreciation and amortization in fiscal 2010.

Lions Gate Chief Executive Jon Feltheimer also said on the call its EPIX movie channel joint venture with MGM and Viacom was gaining momentum, and he expected further carrier deals before it launches in the fall.

EPIX recently announced it will be carried by Verizon Communications Inc's FiOS network.

In the quarter, the company's television production revenue rose 112 percent, mainly on licensing of domestic series from Lions Gate Television and Deb-Mar Mercury, as well as revenue from the company's joint venture with ISH Entertainment.