Analyst Warns Against Possible Redbox Price Hike17 Oct, 2014 By: Erik Gruenwedel
With Netflix acknowledging that a recent $1 price hike for new customers contributed to the SVOD pioneer’s soft domestic subscriber additions in the third quarter, B. Riley & Co. analyst Eric Wold says any plan by Redbox to increase the daily disc rental rate is not a good idea.
Netflix, which had projected more than 1.3 million new domestic subs, finished the quarter (ended Sept. 30) with 980,000 new subs — 31% less than it added during the previous-year period. The result help send Netflix shares into a tailspin.
Meanwhile, Redbox has been testing daily price increases from 13% to 25% for DVD and from 17% to 33% for Blu-ray Disc in select markets, according to Wold.
The analyst contends that if Netflix, with its significant level of original and exclusive programing, is experiencing pushback from a 12.5% price increase, there is validity to concerns about a Redbox price hike. At the same time, Netflix’s price hike is recurring while any kiosk price increase would only affect an individual disc rental.
“We believe it provides a valuable comparison — especially when you consider that Netflix’s content is unique and there is nothing unique about the content offered in Redbox kiosks, since a good portion of that content is actually available 28 days earlier through other sources,” Wold wrote in an Oct. 17 note.
With the average Q2 revenue per disc rental transaction around $2.63, possible price increases from 13% to 33% would narrow the gap with transactional VOD — a reality Wold believes could drive more consumers towards digital.
The analyst said average revenue per kiosk increased less than 20% following Redbox’s 20% price hike in 2011, underscoring consumer pushback to the higher prices.
“We continue to believe it may be difficult for Redbox to effectively push through any meaningful price increase without simultaneously having to boost [costly] promotional activity,” Wold wrote.
Redbox parent Outerwall reports third-quarter results Oct. 30.