SAN FRANCISCO -- Beginning September 1, Netflix Inc., the largest U.S. video subscription service, began hitting its nearly 25 million U.S. subscribers with rate increases of as much as 60%. The sticker shock is expected to make Redbox, which rents DVDs for $1 per day through kiosks, even more enticing to movie lovers, said the Associated Press.
"We are very cognizant of the value of the dollar,'' Gary Cohen, Redbox's senior vice president of marketing and consumer experience, told the news agency. "Redbox is all about simplicity, convenience and value.''
Netflix's higher prices will drive business to video rental chain Blockbuster and other home entertainment rivals too, according to the report, but none are better positioned to take advantage of the disruption than Redbox, Wedbush Securities analyst Michael Pachter told AP.
That's because millions of people are expected to keep paying for a Netflix service that streams video over high-speed Internet connections, but will look for other places to rent DVDs at a low price. Most people won't have to go far before coming across a Redbox kiosk; two-thirds of the U.S. population now lives within a five-minute drive of one of the company's red vending machines, which are largely stationed in Wal-Marts, drug stores, supermarkets, convenience stores and other outlets.
Netflix has given its subscribers little reason to stray until now, said the report. Its service emerged as a household staple during the past few years while bundling rented DVDs through the mail with unlimited Internet video streaming for little as $10 per month. Keeping both of those options will cost $16 per month under Netflix's new pricing system. Netflix predicts about 10 million customers will avoid the higher prices by limiting their subscriptions to an $8-per-month streaming plan that doesn't include the latest theatrical releases available on DVD and pay-per-view.
Pachter said that he believes somewhere between 2 million and 3 million customers will simply close their Netflix accounts and abandon the service entirely to protest the higher prices.
Without providing specifics, a Netflix forecast issued in late July acknowledged its higher prices will result in an unusually high cancellation rate. During the past year, Los Gatos, Calif.-based Netflix averaged 2.8 million cancellations per quarter, AP said.
Oakbrook Terrace, Ill.-based Redbox Automated Retail LLC, a subsidiary of Coinstar Inc., Bellevue, Wash., offers new-release DVD, Blu-ray Disc and video game rentals through its network of conveniently located, self-service kiosks. Redbox has rented more than 1.5 billion discs and is available at more than 33,000 kiosks across 27,000 locations nationwide.
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