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Analyst Says Redbox Should Raise Prices

27 Jan, 2014 By: Erik Gruenwedel, Chris Tribbey

Upping DVD nightly fees 5% could offset shorter consumer rental periods, says B. Riley & Co.’s Eric Wold

With the average movie ticket costing more than $8, and studios slowly upping transactional video-on-demand fees, the time appears right for Redbox to raise its nightly disc rental rates, according to at least one analyst.

Eric Wold with B. Riley & Co. in Los Angeles said Redbox would be wise to increase the DVD rental rate 5% to $1.26 per night. Redbox currently charges $1.20 for a DVD and $1.50 for a Blu-ray Disc.

“As the gap between the $1.20 rental price and $5.99 VOD rental price widens, Redbox has an opportunity to boost rental pricing, [or] at least test various prices and impact to demand levels,” Wold said in an email.

While a 6-cent increase would appear negligible, apparently the $1.20 price (which constituted a 20% price hike in 2011) was at the upper-end of the testing done at the time. Yet, Redbox warned late last year that consumers are renting discs for shorter periods of time. A Redbox kiosk rents the typical DVD 15 times at an average of $2 per transaction plus taxes. That transaction period and revenue is shrinking.

Yet, a suggested 25% price hike could be too much given the home entertainment market fragility and low-cost alternatives such as Netflix, which itself has only recently rebounded from a 60% price-hike train wreck to its most popular hybrid rental plan in the summer of 2011 that saw 800,000 subscribers cancel and its stock price freefall.

“Maybe [Redbox does] not need to push the envelope that much, but they definitely need to push it higher to offset any loss in traffic or reaction by consumers to holding discs out for shorter periods of time,” Wold said.

Meanwhile, the analyst believes the improved first-quarter theatrical lineup, 3% uptick in releases and 21% increase in box office, should substantially improve results compared with the prior-year period.

“While there are three more $100 million+ box office titles (the upper end of Redbox’s sweet spot) in 2014 slate, there are fewer animated titles, which should help drive comparable rental demand (animated titles tend to be bought, not rented, by parents),” Wold wrote in a Jan. 27 note.

Redbox parent Outerwall reports fourth-quarter fiscal results Feb. 6.


About the Author: Erik Gruenwedel

About the Author: Chris Tribbey

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