Redbox, a division of Coinstar, Inc. (NASDAQ: CSTR), has sued Warner Home Video over that company's decision to delay the DVD kiosk rental chain's access to its new releases. That lawsuit follows similar suits against Universal and 20th Century Fox, both of which also have sought to delay Redbox releases to preserve demand for higher margin retail sales.

"Redbox remains committed to providing our customers the new release DVDs they want, where they want and at the low price they want," Redbox President Mitch Lowe said in a statement.

James Blunt scored a huge hit in 2005 with "You're Beautiful" and now he's back with his new CD: All the Lost Souls, with a marketing twist.

Warner Music (NYSE: WMG) will be offering the CD on MySpace for $9.99. They will be able to download the tracks to their iPods instantly, and also receive the CD in the mail. That sounds like a pretty good deal!

According to The Financial Times, "Mr Blunt... boasts more than 250,000 MySpace friends. Warner will attempt to piggyback on that popularity by embedding a widget on Mr Blunt's fan page powered by a technology partner, LaLa.com. The companies hope consumers will be drawn in by a seamless experience in which they can listen to an album for free as many times as they like or purchase it without ever leaving a single webpage."

This sounds like a good way for the record labels to bypass middlemen like iTunes but, at $9.99 for the downloads and the physical CD, the margins here look pretty weak. I wonder whether they would experience much of a drop-off in sales if they did away with the "CD by mail" component. How many of Mr. Blunt's fans really want CDs anyway?

But downloading, legal and illegal, has put the record industry in a tough place. If it is to survive and prosper, it will need to continue to try innovative new marketing techniques like this one.

MOST NOTEWORTHY: Cisco Systems (CSCO), Finisar Corp (FNSR), Tenet Healthcare (THC), Best Buy (BBY) and Cascade Corp (CAE) were today's noteworthy upgrades:

• Bear Stearns upgraded shares of Cisco Systems (NASDAQ: CSCO) to Outperform from Peer Perform, with a $36 target, after the quarterly results as they believe revenue growth is sustainable and diversified. Bear expects Cisco to benefit from significant new product cycles over the next two years and believes investments in emerging markets are beginning to pay off.
  

• Merriman upgraded Finisar (NASDAQ: FNSR) to Buy from Neutral to reflect the improved outlook at their top customer, Cisco.

• Tenet Healthcare (NYSE: THC) was upgraded to Hold from Sell at Stifel, as the firm expects shares to remain range bound.

• Pali Capital raised shares of Best Buy (NYSE: BBY) to Buy from Neutral with a $55 target on valuation as they believe the bad news is already priced in.

• Cascade (NYSE: CAE) was upgraded to Market Perform from Underperform at Rodman & Renshaw on valuation.

OTHER UPGRADES:

• Warner Music (NYSE: WMG) was upgraded to Buy from Sell with a $13 target at Citigroup.

• Citigroup also upgraded shares of Copa Holdings (NYSE: CPA) to Buy from Hold with a $71 target.

• Baird upgraded shares of Parkway Properties (NYSE: PKY) to Outperform from Neutral on valuation.

• Computer Sciences (NYSE: CSC) was raised to Hold from Underperform at Jefferies on valuation and improvement in bookings.

• Morgan Stanley upgraded ABB Ltd (NYSE: ABB) to Overweight from Equal Weight.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Sanofi-Aventis (SNY), Dell (DELL), Warner Music Group (WMG), KeyCorp (KEY) and SanDisk Corp (SNDK) were today's noteworthy upgrades:

• HSBC upgraded shares of Sanofi-Aventis (NYSE: SNY) to Overweight from Neutral to reflect the company's new drug pipeline investments.

• ThinkEquity raised Dell (NASDAQ: DELL) to buy from Sell based on expectations for a better-than-expected July quarter due to strong consumer business demand.

• Pali Research upgraded Warner Music Group (NYSE: WMG) to Neutral from Sell on valuation with the stock down 40% year-to-date.

• Merrill upgraded KeyCorp (NYSE: KEY) to Neutral from Sell following better-than-expected Q2 results.

• JP Morgan upgraded SanDisk (NASDAQ: SNDK) to Overweight from Neutral citing increased demand for NAND applications and supply constraints...

OTHER UPGRADES:

• Bernstein upgraded Campbell Soup (NYSE: CPB) to Outperform from Market Perform.

• Boston Properties (NYSE: BXP) was raised to Hold from Underweight at Keefe Bruyette.

• Matrix upgraded Acuity Brands (NYSE: AYI) to Strong Buy from Buy.

• Bernstein raised Regions Financial (NYSE: RF) to Market Perform from Underperform.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Billboard reported Monday that Warner Music Group Corp. (NYSE: WMG) is considering making an offer for England-based EMI Group PLC (LSE: EMI), but sources claim Warner Music would have to up its bid to 290 pence per share. In early May, private equity firm Terra Firma made a 265 pence offer for EMI, over the previous bid of 260 that Warner had made for the music company in February. EMI stock currently sits at 273 pence.

Warner is certainly aiming to acquire EMI as the two have played the buyout game for the last seven years. The possibility of such a high bid makes the potential buyout more interesting as Warner's stocks fell 3.5% yesterday to $15.95. EMI stock is up significantly since the company has agreed to the Terra Firma offer on May 21, rising over 20 pence the day of the announcement. A week later, the stock sat at 276 before falling to 270 by last Wednesday and recovering to close at 273 yesterday.

This is Warner's first announcement that it is still considering making an offer EMI since EMI had recommended the purchase by Terra Firma to the company's stockholders, but isn't an official offer, which "will be made in due course."

Regardless of how Time Warner's (TWX) movie division fairs overall this summer, The Man of Steel has been a boon for Imax (IMAX). Choose your metaphor: "Superman Returns" either soared with, flew away with, or as Sandy Brown of TheStreet.com says, "lifted" Imax this week when the movie took in $6.83 million during its first seven days as an "Imax 3D Experience." This special 3D-enhanced version of the film is currently showing on over 70 Imax screens in the US.

In recent summers movie-goers have shown themselves to be more the up to the challenge of craning their necks for recent Hollywood blockbusters such as "Batman Begins" and whatever they called the last Matrix movie, as opposed to just the forty-five minute glacier, coral reef, or mountain adventure odysseys that still dominate the big big big screen.

 A little 3D Imax buzz can only help Time Warner, which has seen the decent revenue taken in by this lynchpin film in its summer schedule overshadowed amidst repeated reminders in the media that, yes, other superhero movies have opened stronger -- and that is without even mentioning the decidedly mixed reception the movie got from critics.

[Disclosure: I have seen "Superman Returns" once, on the regular-sized big screen, liked it, and will probably see it again.]

(You can read more about Superman breaking a box office record from Christopher Campbell at Cinematical).

The announcement that Warner will sell not only TV but film content via BitTorrent is really quite remarkable.  BitTorrent technology is currently the number one way that Hollywood content is pirated online, which makes it both an obvious threat but also a long-term opportunity. 

It's a different strategy than the other current Hollywood efforts, Movielink and CinemaNow, which initially looked like a somewhat half-hearted effort to say "See, we offer legal downloading, so do the right thing."  Both sites have improved their technology and usability this year, but still involve changing the habits of an audience that's already downloading feature-length content someplace else.  Working with BitTorrent is a gutsy but logical step: go where the potential customers already are.  While some commentators contend that Warner has still set its pricing and DRM restrictions too high, I think that's inevitable: lowering prices and reducing restrictions, once you have your feet wet, is much easier than trying to go the other direction.  (Just ask the print world how well they're doing charging for newspaper and magazine content on the Web.)

What's in it for Hollywood?  First, they've learned from the recording industry: if you don't get in front of illegal downloading, you'll face a really, really tough catchup game.  Legal music downloads are growing fast, but they're still nowhere near the volume of the illegal file-sharing that had years to gain momentum before legal alternatives appeared. 

But past that, selling direct to the consumer could ultimately cut out all the other folks who take a slice of the profits in film distribution: theater owners, Blockbuster, Netflix, cable, satellite.  The metric to watch here is the theatrical window: what's the time period before movies appear on DVD, pay-per-view and soon, the Internet?  The window is getting shorter and shorter, and some producers suggest it will ultimately become no more than thirty days, even for the biggest titles. 

None of this will happen overnight, of course, but fitting nicely into this pattern is the fact that older moviegoers are increasingly building their own theaters at home.  I've spent time recently with some of the mass-market homebuilders--the people who build more than a thousand homes a year--and many feel that the media room will soon become a standard expectation in new homes.  It will be years before the Internet can easily deliver a top-quality home theater experience, but it's none too soon for Hollywood to explore the best and cheapest way to reach that audience. 

 

 

 

Good news, owners of TWX stock! Not only are you going to enjoy the benefits of more reality television, more syndicated re-runs and more pithy "commentary" from observers like myself, you're also going to be getting a nickel.

That's right, yesterday, the Board of Directors of Time Warner declared that owners of Common Stock will receive $0.05 a share, in cash, on June 15, 2006.

Huzzah!

So, the big question is, how many shares of stock would I have to own (which I don't---I don't own any TWX) in order to take advantage of the following Warner entertainment options:

Skype, long the darling of VOIP newbies like me, is nothing if not a bandwagon-jumper. The company, acquired by eBay last September, has never stayed true to its phone calling roots, dabbling in everything from instant messaging to voicemail to videocasting. And we know it: everybody's doing ring tones.

The latest bandwagon, straight from the playbooks of the rest of the phone calling world: music downloads. Today Skype signed agreements with a number of the music biggies, including Warner / Chappell Music, EMI Music Publishing, and Sony / ATV Music Publishing. These agreements will allow Skype to distribute many of its ringtones "lawfully" (was it unlawful before, I wonder?) from artists like Madonna, Depeche Mode, and the Red Hot Chili Peppers.

So I've got to know: how long before Skype launches a campaign where they play some hip-shaking song from the most commercially over-exposed group on television, the Black-eyed Peas? I predict it won't be long.