If Netflix (NASDAQ:NFLX) and Blockbuster (NYSE:BBI) weren't worried about the shiny little Redbox kiosks spewing DVD rentals before, they’d better start sweating now.
Coinstar (NASDAQ:CSTR) will be paying between $155.5 million and $176 million in stock and cash to buy the stakes in Redbox that it didn't previously own. Until now, Redbox was owned by an assortment of companies including Coinstar, a McDonald's (NYSE:MCD) affiliate, and several other minority stakeholders.
Redbox has 35 million unique customers, renting DVDs for a reasonable ransom of a dollar a day through a fleet of 12,000 automated kiosks. They are primarily located in high-traffic areas of penny-pinching clientele like grocery stores, Wal-Mart (NYSE:WMT), Walgreen (NYSE:WAG), and McDonald's. The company claims to have 9% of the DVD rental market.
Redbox has already been a thorn in the industry's side with its marked-down new releases, so why should Netflix and Blockbuster be on notice now? Well, now that Coinstar owns 100% of the company, it's likely to put more muscle behind the initiative.
There's nothing wrong with a business venture having too many cooks in the kitchen. Sites like Hulu, CareerBuilder, and MovieTickets.com seem to be doing just fine with the hydra-headed ownership. However, now that Coinstar is completely on the hook for Redbox, it's going to make sure that it grows, because Redbox will now have a bigger impact on its fiscal performance. Coinstar will also have to prove that it made the right decision in going for all of Redbox.
Redbox is also a concept built for recessionary times. Instead of blowing $20 for a pair of tickets at the multiplex -- before we dive into the costly concessions -- a buck can provide a night of in-home entertainment. Netflix and Blockbuster have also been faring well lately, in response to the growing ranks of coach-potato hermits, but it would be a shock to see Coinstar not make a more aggressive push now that it calls all of the Redbox shots.
Netflix and Blockbuster have done an admirable job in tackling the digital delivery challenges of tomorrow. Now they’d better make sure that they don't lose sight of an old-school solution, with dreams of growing larger in the rearview mirror.
Some items with immediate availability on your Netflix reading queue:
- Netflix has beaten Wall Street profit expectations in six of the past seven quarters.
- It has kept prices in check, beyond charging a dollar more for Blu-ray access.
- Maybe this is the opportunity you've been waiting for.
