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Kozmo cuts out the middleman with studio deals

The online convenience store has started buying videos and DVDs for its movie rental service directly from the studios, allowing it to save money by bypassing distributors. is going Hollywood, cutting a deal with Twentieth Century Fox, Universal Studios and DreamWorks SKG that allows the online convenience store to buy videos and DVDs directly from the studios, the company said today.

In exchange, the studios will take a stake in Kozmo. The deal allows Kozmo to bypass video distributors and pocket higher margins on its video and DVD rentals. Previously, Kozmo bought its video and DVD stock from distributors that marked up the prices from what the studios charged.

Kozmo would not say whether the savings would be passed on to customers, who pay $4.25 to rent a new movie and $2.99 to rent older films.

"Kozmo will always have competitive prices," Kozmo spokesman Matt Higgins said.

The deal comes two days after, Kozmo's main rival in New York, said it would stop offering video and DVD rentals.

Kozmo is backed by five of the top seven studios, all of which own small percentages of the company, sources close to the company said. Columbia Pictures and Warner Bros. have each invested $10 million in Kozmo, according to documents the company filed in March when it planned to go public.

The latest investments by Fox, Universal and DreamWorks are similar in nature, sources said.

Also in Kozmo's S-1 filing with the Securities and Exchange Commission, which it withdrew last month, the company agreed to share profits with Columbia and Warner Bros. Sources said the three latest studios struck almost identical deals.

Kozmo's partnership with the studios is modeled after the ones Blockbuster has with many of the studios, said Cindy Holland, Kozmo's vice president of business development.

Holland, a former executive at a Hollywood distribution and financing company, said she and Kozmo co-founder Yong Kang have worked for months to frame the deals.

She declined to discuss specific terms of the studio alliances.

"I can tell you it greatly enhances the profitability of our movie business," she said.