Redbox Sells Disney Digital Download Codes, Disney Sues - The UpStream

The DVD rental business is certainly not what it used to be. 10 years ago, there was Blockbuster Video, Hollywood Video, plus local shops all over the country. That concept is long gone, put out of business by the original idea of Netflix - DVDs by mail for one low price.

Since then, a bizarre hybrid has emerged, and somehow maintained their existence: Redbox. If you are unfamiliar with the concept, they are vending machines in locations like CVS where you can rent a DVD without interacting with a person. Most of their business process is identical to that of Blockbuster: they purchase special versions of the DVD in bulk from the distributor for a special price, especially for rental.

The only distributor that doesn't offer this option to Redbox is Disney, which means that Redbox purchases retail packaging for their Disney DVDs. We are all intimately familiar with the digital download code that comes with Disney DVDs, which allows you to download a copy to your phone, computer or tablet as part of the purchase price. This is intended to prevent people from trying to break the encryption on the DVD to watch the movie on the go, which they were going to do anyway.

Redbox has decided that it would make good business sense to take the digital code and sell it through their kiosks. The problem, of course, is that this is completely against the law. The code is licensed to stay with the DVD, not to be sold or transferred separately. Because of this, Disney has filed suit against Redbox, claiming copyright infringement. This is a case that will be very easy for the company to make, as the licensing information is included with every DVD sold.

Disney is asking for all revenue generated from illegally selling digital copies of Disney films that it does not own the rights to, often undercutting Disney's own digital distribution prices on platforms like iTunes or Amazon. If the company refuses to turn over the ill-gotten revenue, Disney will ask the court for $150,000 for every instance of copyright infringement. That number, assuming they have sold even a dozen codes, could potentially cripple Redbox, who must already be seeing revenue issues if they took this desperate path.

We have seen companies in the past try creative licensing avoidance. There was Zediva, which streamed DVDs for $2, but their business model of individual DVD players per user was ultimately defeated. Then there was Aereo, which tried to stream local over-the-air programming, but their business model of renting individual antennas and streaming their tuner was ultimately defeated. These companies were startups, though, and flew under the radar for a while before paying the ultimate price. Redbox has money, employees, customers, distribution and notoriety, not to mention a legal team, all of which should have clued off the company that this was a VERY bad idea.