Redbox Expands Higher DVD Rental Pricing Tests

15 Aug, 2011 By: Erik Gruenwedel

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Kiosks in Austin, Texas, now charging $1.15 to $1.20 per night for DVD with no change to Blu-ray Disc and video game pricing

Redbox quietly has begun charging a 15% to 20% premium for nightly $1 DVD movie rentals at kiosks in Austin, Texas, according to an analyst who tracks the company’s parent Coinstar Inc.

Eric Wold, research director with Merriman Capital in San Francisco, said the increased pricing has been ongoing for years as Redbox tests pricing on a market-by-market basis. In 2009 it briefly upped prices in Albuquerque, N.M., and last year implemented rate increases in San Diego; Spokane, Wash.; Miami; and Modesto, Calif., among other areas.

“Although price increases of 15% to 50% could seem aggressive, we believe these prices still represent a significant value relative to other single-use rental options — such as $4 to $5 for VOD and $2.99 for new-release DVDs at Blockbuster,” Wold wrote in an Aug. 15 note.

The analyst said the price increase, which mirror a 10% increase Coinstar recently implemented in its coin-counting business, could be used to accommodate ongoing studio guarantees, including the recently renewed $150 million deal with Lionsgate. Similar renewals with Sony Pictures Home Entertainment and Paramount Home Entertainment are expected.

Wold said the rate hikes also could offset a possible disc price hike and extension of the 28-day delay currently imposed by Warner Home Video, Universal Studios Home Entertainment and 20th Century Fox Home Entertainment on its new releases to kiosks.

Indeed, Chase Carey, COO of Fox’s parent News Corp., last week reiterated plans to keep up pressure on rental kiosks, which he believes undervalue the studio’s content.

“Should one of those changes be negotiated by either of the studios, we believe Redbox would have the ability to implement a price increase enough to offset the impact without needing to resort back to workaround plans — both maintaining margins and not negatively impacting the customer experience,” Wold wrote.

He added that with Netflix Sept. 1 raising monthly subscription prices for members who want to rent discs and stream, the surcharge on DVD rentals at Redbox represents a better deal than the $7.99 monthly fee at Netflix.

The analyst said the price increases could generate about $26 million in pre-tax earnings for Redbox.

“While any assumptions could be made at this point, we believe management has enough data at various prices to know what change would yield the greatest positive result,” Wold wrote.

 

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