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Redbox Tests $1.50, $2 Rentals

2 Nov, 2009 By: Chris Tribbey

In early October Redbox CEO Paul Davis said his company’s kiosks would soon be ready to test “pricing elasticity,” and today consumers in two American markets are discovering what he meant.

The 15,000-plus DVD rental kiosks machine operator is now testing two different pricing models, one in the Harrisburg, Pa., area, the other in Albuquerque, N.M. Residents in the Albuquerque area are now charged $1.50 per night for a rental, while Harrisburg area residents can rent DVDs for $2 a night, with a $1 charge each night after, Redbox confirmed Nov. 2.

The rental prices are universal for both new release and catalog titles.

Eric Wold, analyst with Merriman Curhan Ford, said Redbox was very clear that it would be testing the different pricing models, and that even with the higher rental prices, “I still believe consumers will view the value and convenience of Redbox for the immediate gratification of a DVD rental as superior to the other rental options out there.”

“Personally, I’m a little concerned about the negative impact to the ‘$1 per day’ marketing message that is now so widely associated with the Redbox brand,” he added. “However, if Redbox is able to push through a higher price point without negatively impacting the brand or traffic/usage to any great degree, then the positive benefit to margins could be substantial.”

Redbox is currently in legal fights with 20th Century Fox Home Entertainment, Universal Studios Home Entertainment and Warner Home Video over those studios’ attempts to keep wholesalers from selling new release DVDs to Redbox. The company currently is buying DVDs from those studios directly at retail.

Wold said the higher pricing models, if successful, could help bring those studios back to the negotiating table.

“And if it doesn’t, then the higher price point would offset the workaround costs,” he said.

Richard Greenfield, an analyst at Pali Capital said neither of these prices are what the studios actually want, but Redbox is moving in the right direction.

“I’ll be shocked if they roll it out farther,” he said. “Testing in two random cities is a lot different than a nationwide rollout.”


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