Redbox Follows Netflix in Caving In

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Congratulations, Redbox! You're now as cheap as your $1 nightly rentals.

Coinstar's (Nasdaq: CSTR  ) Redbox finally settled with Time Warner (NYSE: TWX  ) . It agrees to give the studio four weeks to market its new DVDs before stocking them in its automated kiosks. Similar to the deal that Time Warner struck with Netflix (Nasdaq: NFLX  ) , Coinstar will receive discounted pricing and plenty of inventory.

As long as consumers don't mind, it won't be a problem. For now, Netflix hasn't received a whole lot of backlash for its deal. Netflix subscribers have had to wait an extra four weeks for The Invention of Lying and The Time Traveler's Wife, but it's not as if these were blockbusters. The real test of patience will come next month.

Time Warner is releasing The Blind Side on March 23, two weeks after the Academy Awards. It may be a long four weeks for Netflix and Coinstar, especially because potential renters will realize that the movie is readily available through Blockbuster (NYSE: BBI  ) stores or their cable provider's video on demand.

Netflix has argued that its service is not fueled by new releases. Coinstar can't make that claim, given the limited number of discs its machines can stock. Members of both services are about to feel like second-class citizens in the rental market, and it may not be pretty.

Coinstar was trading legal volleys with Time Warner, News Corp.'s (NYSE: NWS  ) 20th Century Fox, and General Electric's (NYSE: GE  ) majority-owned Universal. They want their freshest releases out of the Redbox machines, fearing that the $1 rentals hurt their chances for outright sales. In announcing last month's deal with Netflix, Time Warner conceded that 75% of new DVDs are sold during their first four weeks on the market.

In short, Redbox kiosks will begin feeling a lot less relevant, especially as Coinstar strikes similar deals with the remaining studios. As studios advertise their new releases in pursuit of DVD sales and high-margin video-on-demand views, Netflix and Redbox will become more and more exposed.

This is going to be a real problem, for Coinstar in particular. At least Netflix can point to its data-crunching recommendations engine or its growing streaming service. Coinstar simply will not have the Time Warner flicks -- until a large group of movie fans have already bought a copy.

Obviously, this opens the door for a Redbox -- or perhaps even Netflix -- clone that stocks fresh releases.

Coinstar settled, all right -- it settled for less.

Is Coinstar doing the right thing by teaming up with Time Warner? Share your thoughts in the comments box below.

Netflix is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletter services free for 30 days. That's less than a Redbox rental.

Longtime Fool contributor Rick Munarriz is surprised that the Winn-Dixie supermarket chain is the only retailer with Redbox kiosks in his hometown of Miami. He owns shares in Netflix. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Read/Post Comments (8) | Recommend This Article (4)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 17, 2010, at 4:43 PM, databasemarket wrote:

    Very interesting. I don't understand why they don't rent the new releases at higher prices within the RedBox.

    I love RedBox, but 4 weeks is too long.

  • Report this Comment On February 17, 2010, at 4:45 PM, databasemarket wrote:

    Not sure my first comment made it in. Sorry if it's a dupe.

    Why not charge a higher price for more recent movies?

    Love RedBox.

  • Report this Comment On February 17, 2010, at 8:08 PM, digitaldays wrote:

    Perhaps new release pricing wasn't on the 'final' negotiating table...interesting now to see what the ripple effect will be with the other studios

  • Report this Comment On February 18, 2010, at 10:20 AM, mojoworkun wrote:

    Once again you miss the point and will be proven wrong in time. Folks lik Redbox due to the $1 price, and anytime rental and return. If folks wanted to be the first to see a movie they would simply go to a theater. Theaters, and other earlier viewing venues, are not a threat to Redbox, as Redbox viewers enjoy the $1 price point, and consquently are more likely to view a larger number of movies than otherwise. How does Redbox make so much money? Volume. Stack 'em deep and sell 'em cheap. And getting lots of product is one of their keys to success. Running around to Walmart/Target to get inevotory wasn't as viable in the long run.

  • Report this Comment On February 18, 2010, at 11:11 AM, databasemarket wrote:

    I would still buy the older releases for $1 - the new releases won't be available, so they are leaving money on the table. $1 is an easy marketing statement, but $2 for new releases is still so cheap that I would buy it. And how about $2 for BlueRay and $3 for BluRay new releases and be able to charge $30 for non-returned BluRays!

    I think the problem is logistics. The machines have to know which is which and how to price them. And what if you return it after the 4th week, etc? Too much effort.

    Movie theaters will make money when they can keep costs down. When digital delivery is the standard, theaters will be profitable.

  • Report this Comment On February 18, 2010, at 10:50 PM, emptygestures wrote:

    I don't think anyone will be rushing to blockbuster to catch such garbage titles and "The Time Traveler's Wife" and "Couple's Retreat". People forget some time that the economy still is in the toilet and everyone is working harder than they used to... If you are waiting for god awful titles to pick up as soon as they come out then 1.) You need to put in some more hours at the office, lab, shop, etc. 2.) You have poor taste in movies.

  • Report this Comment On February 19, 2010, at 4:45 PM, dalalsid wrote:

    "Obviously, this opens the door for a Redbox -- or perhaps even Netflix -- clone that stocks fresh releases."

    Blockbuster is trying to be both at the same time

  • Report this Comment On September 05, 2010, at 7:22 PM, wezzzlyc wrote:

    Redbox and Netflix is DEAD....Yea!

    People want new releases when they come out and now since they have the 28 day window it will kill them. They think people like their slow and long waiting service. I like many people want to see a movie... we want to see it now. People rent movies at the spur of the moment. We dont just say "I think I will watch a movie on Wednesday night so I will order it and watch it then." That doesn't happen. The reason blockbuster is in trouble is because they charge way too much. but blockbuster dont have everything. they are very picky about what they carry. I opened a new video store and people love us. Every customer we talk to tells us they hate netflix. Netflix and Redbox are cheating the customer out of new releases for their own advantage. they care less about YOU the consumer. We treat our customers like gold and carry anyting we can to keep our customers happy. we rent our new releases for only $2 a night. People will continue to go to mom and pop video stores because they care. Also on another note if these companies think that the internet is the way to go i believe they are truly wrong. A recent study shows that the quality that blue ray dvds have cannot be sent in the same quality over the internet because the internet suppliers dont have a fast enough speed to send that high quality of a movie. so for all video stores don't worry about these so called companies to kill your business because it all goes down to service and those companies don't have what it takes. Long live the video store.

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