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Who Is Winning the Rental Race?

31 Jul, 2012 By: Stephanie Prange

Has Netflix pulled away from disc rentals too quickly? That’s the question I asked when looking at the latest quarterly results from both Netflix and Redbox kiosk parent Coinstar.

Netflix had rather disappointing results, meeting some expectations but not showing the enormous subscriber growth that Wall Street craved. Meanwhile, Redbox continued to eat up disc rental market share, taking advantage of the pullback of both Blockbuster, which relinquished its NCR kiosks to Redbox, and Netflix, which continued to concentrate on the promise of streaming.

Michael Pachter, analyst with Wedbush Securities in Los Angeles, noted that Netflix CEO Reed Hastings’ boast that subscribers streamed 1 billion hours of content in June may prove costly.

“We think content owners ultimately value their content based upon the number of views, and as Netflix grows its subscriber base and overall viewing hours, it is inevitable content costs will continue to rise,” he wrote.

Building a subscription streaming business is proving to be harder for Netflix than capitalizing on the collapse of disc rental competitors is for Redbox. As pretty much the last physical rental option standing in many markets, Redbox is making hay. There seems to be a constant line of renters at the kiosk in my local grocery store.

Indeed, the future is primed for streaming, but how fast will that future arrive? I think Redbox may have a better handle on the timing than Netflix, as it keeps its business more firmly rooted in physical disc rentals. Certainly, Redbox is setting up for the future, having announced some particulars for its Verizon digital venture. But, in the meantime, it is piling up profit from its physical rental business.

Many innovators have fallen because they came too soon or moved too fast for consumers. Meanwhile, the move-slow approach often has proved more successful in the end.

If Netflix is the hare, Redbox is the tortoise.

And, anyone who has heard the fable knows who wins in the end.

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About the Author: Stephanie Prange

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