Redbox soars even after price increases

Shares of the DVD chain's parent company are jumping after surprise news of a hot quarter -- and Netflix investors seemed skittish on the news.

By Kim Peterson Apr 13, 2012 3:14PM
When we talk about Coinstar (CSTR), we're mostly talking about Redbox, the chain of video-rental kiosks it owns. And Redbox is doing very well -- even after pushing a price increase through late last year -- which explains why Coinstar had a spectacular first quarter.

Shares of Coinstar rose more than 7% Friday after the company upped full-year guidance and said that its first quarter would be better than expected.

Post continues below.
A big surprise in the quarter was that Redbox's price increase in October went over better than expected. The company boosted its one-day DVD rental fee to $1.20 from $1. When it tested the increase, it saw demand slip, and Coinstar was prepared for that on a larger scale. But as it turned out, demand didn't falter as much as it expected.

That led Coinstar to bump up projections for first-quarter revenue to between $567 million and $569.2 million. It previously estimated revenue at between $530 million and $555 million. The company also said its earnings before taxes and other deductions would be between $127.9 million and $130.1 million -- a significant increase from previous estimates of between $94 million and $104 million. This is all preliminary; the company will report its quarterly results on April 26.

So what does all this mean for Netflix (NFLX), Coinstar's main rival in the DVD-rental business? It shows that Redbox's mild price increase was not enough to get people to jump ship. Netflix shares were down more than 1% Friday, but swung back to a slight afternoon gain.

Coinstar also reported good news in its ongoing spat with Warner Bros., the studio that tried to bully Redbox into not renting new movies until 60 days after they went on sale. Redbox would not agree to those terms, so Warner Bros. refused to sell its DVDs to Redbox. As a result, Redbox had to buy those DVDs through other means. Coinstar said this workaround was not as expensive as it had anticipated.

That bit of news is undoubtedly ruffling feathers at movie studios. Hollywood is worried that the low-priced rental model will hurt DVD sales, and strong-arm tactics from Warner Bros. hasn't affected that model at all.

Meanwhile, Coinstar is gearing up for a great year, largely propelled by Redbox sales. The company said that for all of 2012, it now expects revenue at between $2.16 billion and $2.28 billion. Earnings before taxes and other deductions are estimated at between $465 million and $495 million.

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3Comments
Apr 13, 2012 5:59PM
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There are no other options for renting movies any more now that most brick and mortor video stores have gone under and become venues for quick cash and title loan shops charging 522% APR on loans such as is common in a whopping half of Missouri's small business locations. My complaint with Redbox is their DVD's won't play on a PC not connected to the internet and then it takes any where from 5 minutes to 30 minutes for them to initialize to be read by a PC's DVD player. It's probably an encrypted code on the new disks requiring the computer to validate that the DVD through the internet that it's a legit copy before it will play. More inconvenient time wasters for higher prices is the sign of the times.  Redbox also needs to do a better job at populating their machines in smaller towns such as Macon and Moberly, Missouri as the selection is too limited in small town markets.

Apr 14, 2012 10:09AM
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I agree, I just came off 5 payday loans myself but that's another story. Coinstar has consistantly provided my family with entertainment at a fair and reasonable price through

Redbox. When it first came in front of our 7-11 we paid no attention and just thought it was a

fad, being loyal Blockbuster fans; however, when Blockbuster started charging $2.00 and

more, indescriminately, we realized the true value of the consistant $1.07 per day for a dvd

we could all enjoy! Now at $1.20 we are incorporating the cost increase into our budget to enjoy a movie whenever we can. Let's face it the price of everything is going up and in

comparison to the price of gas a year ago at $1.77 per gallon, now gas here on the west

coast is at $4.10 more than doubled, so I think it's a fair increase and now I can buy shares in

coinstar looking for growth, and i'm hoping it will put my kids through college! Warner Bro's should be more concerned with Crackle.com where you can watch movies for free and realize

Coinstar and Redbox is their allie not their enemy!

Apr 13, 2012 6:57PM
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