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Redbox Rentals Sitting Pretty

20 Apr, 2012 By: Stephanie Prange

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One of the side effects of both Blockbuster closing stores and Netflix starving its disc rental business is the continued rise of Redbox.

While Redbox won’t reveal its final first-quarter financial report until April 26, parent Coinstar began to show its hand earlier this month, saying both profit and revenue would exceed expectations despite Redbox raising daily DVD rental prices from $1 to $1.20.

How many businesses can say raising prices didn’t hurt revenue or profit in these difficult economic times? Perhaps Apple with its higher-priced, uber-cool products can push higher margins on consumers, but not many other businesses have had that kind of price elasticity.

In the end, $1.20 isn’t that much more than $1 in many consumers’ minds, considering Redbox has garnered a larger and larger share of the physical rental market. Consumers simply have fewer choices. The video rental store is all but dead in many areas. Meanwhile, Netflix has all but abandoned its disc customers, forcing them to pay more for disc rentals plus streaming and cordoning off disc customers from the streaming service’s recommedation and reviews system.

Redbox (and indeed Netflix) has built its business being the low-price rental leader, and an extra 20 cents doesn’t seem to hurt that position at all — despite rental windows from major studios.

So far so good for Redbox’s mastery of the physical rental arena.

What I and many analysts are waiting for are the details of its digital delivery pact with Verizon. If Redbox can somehow offer a new value proposition in the digital arena, it could prove a strong competitor to the likes of Netflix and others — backed by its already profitable physical rental business.

As Netflix pulls away from its disc rental business, Redbox can move in with a new hybrid of physical and digital rentals. No other retailer, save for Blockbuster, has the same opportunity.

While Redbox’s physical rental business is booming — proving DVD is far from dead — its digital plan could be the roadmap for the future. 

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