Will Redbox pull a Netflix with its price hike?
The company says that DVD rental fees will now be $1.20 per day, rather than the $1 it previously charged. Blu-ray and video game rental prices will stay the same.
Et tu, Redbox? Coinstar, owner of the Redbox service, is raising DVD rental fees by 20 percent, due to an increase in operating expenses. Let's see if this stirs a Netflix-like outcry.
Netflix's decision over the summer to increase prices for those who had both streaming and DVD-rental plans was met with intense anger from subscribers. Those customers, who were previously paying $9.99 per month for DVD rentals and streaming,.
As soon as the price hike was announced, many subscribers loudly declared they would leave Netflix in favor of other services. And that was no empty threat. Earlier this week, Netflix revealed that.
Luckily for Redbox, its price hike isn't nearly as great in cash terms as Netflix's. Starting Monday, customers who want to rent DVDs from Redbox kiosks around the U.S. will need to pay $1.20 per day, rather than the $1 they had been paying. The 20 percent price hike won't affect Blu-ray or video game rentals, however, which will stay at $1.50 per day and $2 per day, respectively.
Moreover, Redbox might just have a good excuse for its rental-fee hike, which could also play into its favor.
Coinstar CEO Paul Davis said in a statement in his company's third-quarter earnings report that the Durbin Amendment, which went into effect earlier this month, has increased "debit card interchange fees," pushing Redbox expenses up. We'll have to see if the company can stay on message better than Netflix did.
Wedbush analyst Michael Pachter expanded upon Davis' explanation in a research note today, saying that as of October 1, Redbox was forced to "pay Visa and MasterCard roughly 23 cents per debit card transaction, instead of an estimated 6 cents per transaction previously, representing a 17-cent increase over the prior rate."
"We remain committed to providing Redbox consumers access to the latest movies at an incredible value," Davis said in defense of the decision. "This marks the first price increase for a Redbox standard definition DVD rental in eight years."
That justification aside, it appears shareholders are concerned that Redbox customers will respond unfavorably to the news of a price hike. In pre-market trading, Coinstar shares are down nearly 10 percent to $48.06.