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Redbox Raising Disc Rental Prices

24 Nov, 2014 By: Erik Gruenwedel

Daily DVD rate increasing 25%; 33% for Blu-ray Disc; 50% for video games

Redbox Nov. 24 announced it is raising the daily rental price for DVD and Blu-ray Disc titles beginning Dec. 2, video games beginning Jan. 6, 2015.

The kiosk vendor will charge $1.50 for DVDs and $2 for Blu-rays per day. Video games will increase to $3 a day from $2. Redbox parent Outerwall said it chose the price hikes following months of testing in select markets.

"With [the new pricing], Redbox remains the best value in new-release home entertainment," Outerwall CEO J. Scott Di Valerio said in a statement. "The pricing adjustments announced today will allow Redbox to continue to offer consumers high-quality movies and games while making investments to enhance the customer experience."

While the company expects an adverse impact on Redbox rental volume as a result of the price changes, Outerwall believes the price increases, coupled with Redbox's network optimization initiatives, will help offset future declines in the physical rental market.

Indeed, Netflix saw softer net subscriber additions in its most recent fiscal quarter after it raised the basic subscription rate $1 to $9 per month.

Di Valerio doesn’t expect a similar fallout for Redbox.

"Today's announcement represents the first time Redbox has raised prices on Blu-ray discs and video games and only the second time in more than 12 years that we've raised prices on DVDs," he said.

B. Riley & Co. analyst Eric Wold said he expects Redbox users to adjust their usage patterns with reduced basket sizes and/or holding periods along with being more aggressive with promotional offer usage. In the short term, Wold said the price hike will boost per-rental revenue while depressing kiosk traffic.

“We already have flattish [revenue/transactions] levels for both 2015 and 2016 — with the potential for a medium- to longer-term acceleration in market share shift away from Redbox,” Wold wrote in a comment.

Wedbush Securities Michael Pachter concurred, saying there would be some price elasticity of demand, but that overall Redbox revenue should go up, in addition to in-stock availability of popular titles.

“It’s a good thing,” he said.

About the Author: Erik Gruenwedel

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