Analyst: Redbox Can Up Daily Rental Fee 25%21 Sep, 2011 By: Erik Gruenwedel
With credit card companies possibly upping fees for smaller transactions next month, an analyst says Redbox should up its $1 daily rate
Redbox should increase the daily $1 DVD rental fee to $1.25 to offset probable higher fees credit card companies may charge retailers for debit card transactions below $10, an analyst said.
The Durbin Amendment, which is part of the Dodd-Frank Act and is set to go into effect in October, would limit the amount card companies can charge retailers for debit (not credit) card transactions. Observers believe card companies will attempt to bridge the revenue gap by upping fees for non-capped smaller transactions — a move that would directly impact kiosk vending.
Redbox currently pays about 5 cents per debt card transaction — an amount that could increase to 22 cents per transaction, according to Eric Wold, research director with Merriman Securities in San Francisco.
While a price increase to movie rentals would appear to be strategic suicide (see Netflix), Wold said Redbox has done considerable experimentation with daily fees around the country to comfortably trigger a change. He said Redbox currently generates about $2.20 for the average movie rental transaction.
The company operates about 30,000 kiosks in about 24,000 locations.
“In our opinion, this price would still be more attractive than other rental options and could actually drive a margin boost to Redbox since the price increase would benefit all transactions, while the debit fee hike would only impact about half of all transactions,” Wold wrote in a Sept. 21 note.
A Redbox representative was not immediately available for comment.