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Analyst: Netflix Disc Sub Loss a Gain for Redbox Instant

23 Jul, 2013 By: Erik Gruenwedel, Chris Tribbey

Netflix posts largest quarterly drop in disc subs since 2011

Netflix’s oft ignored by-mail disc rental service lost 470,000 subscribers in the second quarter (ended June 30) to finish with more than 7.5 million members.

It was the first surge in declining disc subscribers since Netflix began separating streaming and physical-disc members in 2011, and represented a 5.9% drop from the previous-year quarter. Netflix lost 240,000 disc subscribers in the first quarter. Notably, disc rentals generated $109 million in contribution profit, which represented almost a 47% margin — more than twice Netflix's streaming-only contribution margin of 22.5%.

While Netflix CEO Reed Hastings insists the by-mail rental pioneer is not turning its back on packaged media, B. Riley & Co. analyst Eric Wold says the increased reduction in Netflix subs suggests consumers are gravitating toward Rebox Instant by Verizon, which offers physical and streaming access for the same $7.99 per month fee.

Redbox Instant, which offers unlimited SVOD access to 5,000 titles in addition to four disc rentals, was launched to the public in March — the end of the first quarter.

“We continue to believe that the $8 combo disc/streaming subscription plan offered by Redbox Instant will represent an attractive option to Netflix DVD-only subscribers that are paying the same price for disc access only,” Wold wrote in a July 23 note.

The analyst believes Redbox will significantly increase marketing efforts for the SVOD service beginning in Q3 or Q4 when summer theatrical titles begin their migration to home entertainment.

“Nevertheless, we take this trend reversal with Netflix DVD-only subscribers as an optimistic sign that Redbox Instant is already having a competitive impact on the industry,” World wrote.

About the Author: Erik Gruenwedel

About the Author: Chris Tribbey

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