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Redbox may gain as Netflix debuts higher prices

Video service’s new fees take effect today

Redbox has rental kiosks in 33,300 locations, including this site outside Grauman’s Chinese Theatre in Los Angeles. Redbox has rental kiosks in 33,300 locations, including this site outside Grauman’s Chinese Theatre in Los Angeles.
(Joe Kohen/Associated Press Images for Redbox)
By Michael Liedtke
Associated Press / September 1, 2011

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SAN FRANCISCO - Netflix is giving Redbox a golden opportunity to gain some ground.

Beginning today, Netflix, the largest US video subscription service, will hit its nearly 25 million US subscribers with rate increases of as much as 60 percent. The sticker shock is expected to make Redbox, which rents DVDs for $1 per day through kiosks, even more enticing to movie lovers.

“We are very cognizant of the value of the dollar,’’ said Gary Cohen, Redbox’s senior vice president of marketing and consumer experience. “Redbox is all about simplicity, convenience, and value.’’

Netflix Inc.’s higher prices will drive business to video rental chain Blockbuster and other home entertainment rivals too, but none are better positioned to take advantage of the disruption than Redbox, according to Wedbush Securities analyst Michael Pachter.

That’s because millions of people are expected to keep paying for a Netflix service that streams video over high-speed Internet connections, but will look for other places to rent DVDs at a low price. Most people won’t have to go far before coming across a Redbox kiosk; two-thirds of the US population now lives within a five-minute drive of one of the company’s red vending machines, which are largely stationed in Wal-Marts, drug stores, supermarkets, and convenience stores.

Netflix has given its subscribers little reason to stray until now. Its service emerged as a household staple during the past few years while bundling rented DVDs through the mail with unlimited Internet video streaming for little as $10 per month. Keeping both of those options will cost $16 per month under Netflix’s new pricing system. Netflix predicts about 10 million customers will avoid the higher prices by limiting their subscriptions to an $8-per-month streaming plan that doesn’t include the latest theatrical releases available on DVD and pay-per-view.

Pachter believes somewhere between 2 million and 3 million customers will simply close their Netflix accounts and abandon the service entirely to protest the higher prices.

Without providing specifics, a Netflix forecast issued in late July acknowledged its higher prices will result in an unusually high cancellation rate. During the past year, Netflix averaged 2.8 million cancellations per quarter.