Earlier today, Coinstar announced an increase in price on DVD rentals at Redbox kiosks from $1.00 a day to $1.20 a day. The price hike takes effect on Monday October 31 at all 34,000 Redbox stations in the United States. However, two dollar a day video game rentals and $1.50 a day Blu-ray rental prices will remain unchanged for the time being. The company claims that the price alteration was needed due to rising operating costs such as larger debit card fees. However, Coinstar’s earnings have nearly doubled due to more people adopting the rental kiosks over alternatives like Netflix. Investors reacted negatively to the news of the price increase as shares of Coinstar fell ten percent today.
While Netflix didn’t make any attempt to test its price increase before launching to consumers, Coinstar rolled out the price increase in a variety of cities over 2011 to understand how rental patterns would change. Senior management at Coinstar determined that the drop in volume of DVD rentals would be very small. During the third quarter of 2011, Redbox overtook Netflix in market share of DVD rentals. The U.S. market share for Redbox was 35 percent while Netflix was at 33 percent. This is a vast increase from a year earlier where Redbox has approximately 24 percent of the total DVD rental market.
Coinstar and other rental agencies are also facing a possible increase in the amount of time that DVDs become available to rent. Studios are thinking about moving from a 28-day window to a 60-day window for rental copies. This would force consumers to pay the purchase price of a DVD or spend more money on video-on-demand rentals. Blockbuster is also facing resistance from movie studios. Warner Brothers revoked Blockbuster’s ability to rent new releases and the rental chain now has to wait the full 28 days to offer rentals of those films. Blockbuster will be able to sell the Warner Brothers films though.
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