Redbox recently announced it was raising prices starting in December. DVDs will cost 25% more than they do now, or $1.50 per disk, and Blu-ray discs will cost $2, a 33% increase. Starting in January, video game rentals are going up 50% to $3 per day. It's only the second time in more than 12 years that Redbox has raised its DVD prices, and the first time it's raised Blu-ray and video game prices, as the company was quick to remind us.
Investor excitement over the price hike sent Outerwall's stock jumping 11% on the news. In reality, this is an ominous development that ought to scare shareholders.
The DVD industry is dying. That's no surprise. It's been a long time coming and was part of Outerwall's rationale in copying Netflix (NASDAQ:NFLX) by developing its own video-on-demand service, Redbox Instant. Killing off the service in October, less than two years after rolling it out nationally, showed it couldn't effectively compete in the VOD space. The DVD price hike shows kiosk rentals may not be far behind.
Redbox accounts for 80% of Outerwall's revenues and movies make up almost the entire amount. Video games accounted for just 2.1% of all disc rentals this past quarter. But Redbox is seeing fewer people renting videos.
In the third quarter, only 172.2 million units were rented, down 13.7% from the year ago period. It's not only a significant drop by itself, but actually represents an acceleration of the decline.
Follow Rich Duprey's coverage of all the retailing industry's most important news and developments. He has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), Google (C shares), and Netflix. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.