Redbox soars even after price increases

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.

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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.