Schadenfreude can be contagious.
It's true that Coinstar's 27% plunge on Friday is based on a weaker-than-expected holiday quarter at Redbox. Netflix believers may laugh it off as an evolutionary shortcoming of DVD-spewing kiosks. They're immune. Netflix mails out discs, and more than half of the celluloid that its nearly 20 million subscribers are consuming is now being streamed.
Unfortunately, it's not that easy. Coinstar's dramatic hosing down of its fourth-quarter results is the company's first holiday quarter since last year's decision to follow Netflix into striking deals with major studios to delay the availability of new releases.
Netflix and Redbox have agreed to hold back offering new titles during their first 28 days of retail availability.
"We underestimated the impact that the delay would have on demand during the fourth quarter," CEO Paul Davis notes in Friday's press release.
Really? What did you think would happen, Paul?
After four weeks of rental access through Blockbuster and video on demand, who cares about Netflix and Redbox? Studios only advertise movies during their cinematic run and initial retail availability.
"This is going to be a real problem, for Coinstar in particular," I wrote at the time. "At least Netflix can point to its data-crunching recommendations engine or its growing streaming service."
Fellow Fool Anders Bylund also believes that Netflix will make it through this challenge just fine.
"Pay-per-rental kiosks and low-cost unlimited subscriptions are fundamentally different business models," he wrote last week.
I'm not so sure. Have you noticed how revenues are growing slower than subscriber growth at Netflix since these deals were struck? Couch potatoes are simply downgrading their plans. Better unlimited streaming options may be softening demand for optical discs, but I think a growing number of Netflix members are trading down so they can have money to check out newer releases on the side.
This isn't just some quarterly blip. Coinstar's initial guidance for 2011 is well below where the analysts were perched before the revelation. It's been busy adding video games to thousands of its kiosks, offering Blu-ray discs at higher price points, and increasing capacity with doublewide kiosks. It has a handful of catalysts, and it's still slipping.
Netflix and Redbox are still growing, thankfully. The rub here is that they are now the second-run cinemas of the retail rental space. Netflix's saving grace is the growing popularity of digital streaming -- and the ease of access to appliances that bring streaming into home theaters -- but these 28-day deals are handshakes that both companies will regret making.
Coinstar realizes this now. Netflix will realize this later.
Would you rather own Coinstar or Netflix? Share your thoughts in the comment box below.