What Netflix effect? Redbox will raise rates instead


Redbox was expected to be one of the big beneficiaries of Netflix’s most recent price change. But the effect of that change wasn’t entirely apparent in Redbox’s numbers, as parent Coinstar reported revenues Thursday just slightly above Wall Street consensus. Even worse, Redbox announced it is raising its discount $1 a night rental prices by 20 percent.

Coinstar reported third-quarter revenues of $465.6 million, which was just north of analysts’ forecasts of $462 million and above the mid-point for the company’s quarterly forecast of between $450 million and $470 million. But its own forecast was made in mid-July, long before the full extent of Netflix’s price hike and miscommunication with subscribers was known. Since then, Netflix announced that it has lost more than 800,000 subscribers in the U.S.

With Netflix on the ropes after three months of bad PR, there was some hope that defecting Netflix subscribers would take their dollars and invest them in nightly rentals from DVD kiosks instead. But the expected jump in sales failed to materialize — and for investors, that lack of a big pickup in activity was a big disappointment. In after hours trading, the stock is down more than 10 percent, after rising nearly 20 percent in the previous few months due to negative Netflix sentiment.

That fall in share price could also be due to an increase in daily rental rates that Coinstar announced as part of its earnings release. Redbox will raise the price of a nightly DVD rental to $1.20 beginning next Monday, which is up from the current $1.00 rate today. The company said the rate hike was due to higher operating expenses from increased debit card interchange rates. The company will keep the price of nightly Blu-ray and game disc rentals — at $1.50 and $2.00 a night, respectively — the same, however.

Despite the higher rates and opportunity created by Netflix’s problems, Coinstar actually narrowed full-year guidance in the third-quarter report. After the second quarter, Coinstar gave full-year guidance of between $1.76 billion and $1.85 billion. With the most recent report, the company is guiding to between $1.81 billion and $1.835 billion, reducing some of the potential upside from the earlier forecast.

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