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Paramount extends trial with Redbox

Hollywood studios eagerly await studio’s decision

HOLLYWOOD – Paramount Pictures has put off a decision whether to enter into a five-year deal that’s riled half the Hollywood studios.

The Viacom Inc.-owned studio has extended through June its trial agreement with $1-a-night DVD kiosk company Redbox, that was set to expire Dec. 31. Under the deal struck in August, Paramount committed to provide new movies to Redbox in exchange for data that would help it decide whether low-priced rentals were hurting sales.

Paramount’s ultimate decision is being closely watched, since it could indicate where the majority of the Hollywood studios stand in regard to supporting the video rental company that has seen growth mushroom despite a big drop in DVD sales.

By the end of the year, Paramount was supposed to make up its mind whether to trigger a five-year pact to supply movies to Redbox that was expected to generate $575 million for the studio. That deadline has been extended to June 30.

Universal Pictures, 20th Century Fox and Warner Bros. are all in court trying to prevent Redbox from offering new releases for about a month after they are first released on DVD. The studios contend low-cost Redbox rentals undermine their DVD business by drawing consumers from higher-priced, more profitable rentals and purchases.

Redbox counters that it is generating new revenue for the studios and that its effect on sales is minimal.

Sony Pictures, Lions Gate and Summit Entertainment have signed long-term deals guaranteeing availability of their movies to Redbox. Walt Disney Studios provides its movies without a formal arrangement.

Paramount has three DVDs scheduled to come out by June: “Paranormal Activity,” “Up in the Air” and “The Lovely Bones.” Waiting will give the studio time to assess the effect of Redbox on dramas and a low-budget horror flick, as well as its longer-term impact on recently released summer tentpoles such as “Transformers: Revenge of the Fallen” and “Star Trek,” which are among the best-selling DVDs of 2009.

“We’ll benefit from being able to thoroughly evaluate the tail on currently released titles, as well as continuing to examine the performance of other types of titles during the extended test period,” said Dennis Maguire, Paramount’s home entertainment president.

The delay also will provide Paramount with one additional benefit: If Fox, Universal and Warner resolve their litigation with Redbox in the next six months, its decision about whether to sign a long-term deal would become much simpler.