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Redbox Follows Netflix in Caving In

By Rick Munarriz – Updated Apr 6, 2017 at 2:00PM

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Coinstar agrees to release windows with Time Warner for its DVD kiosks.

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. 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.

Stocks Mentioned

Outerwall Inc. Stock Quote
Outerwall Inc.
Netflix Stock Quote
$311.39 (-0.38%) $-1.20
General Electric Stock Quote
General Electric
$86.78 (2.50%) $2.12
Time Warner Inc. Stock Quote
Time Warner Inc.

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