After Raising Prices, Will Redbox Suffer the Same Fate as Netflix?

NEW YORK (MainStreet) – A few months after Netflix set off a furor by increasing prices by 60%, upstart competitor Redbox has increased the price of its daily rentals by 20%. The price increase, the first since Redbox began selling DVDS eight years ago, was announced Thursday in an email to subscribers.

That may seem significant until you remember that the previous cost of a daily DVD rental was just $1, so the price is rising by only 20 cents to $1.20. Blu-ray rentals will remain $1.50 a day, while video game rentals will stay at $2.

So how will customers react? The share price of Coinstar (Stock Quote: CSTR), Redbox’s parent company, took a tumble Thursday, possibly indicating that investors are worried about a customer revolt. Still, that may have had more to do with disappointing fourth-quarter projections than any feared backlash by consumers who can’t find the extra 20 cents to rent a DVD.

“My feeling is that you’re not going to see any noticeable drop-off,” says Rafi Mohammed, a pricing expert and author of The 1% Windfall. “Going from $1 to $1.20, in terms of percentage, is high, but in absolute terms it’s not much.”

So we’re unlikely to see any kind of Netflix-style revolt, despite Blockbuster’s high hopes. Also working in Redbox’s favor, says Mohammed, is that the company did a much better job than Netflix at explaining the reasons behind the price increase.

Oddly enough, one of the causes was increased operating costs stemming from the Durbin Amendment to the Dodd-Frank financial reform legislation, which was meant to benefit retailers (and by extension, consumers) by capping debit card interchange fees at roughly 21 cents per transaction – about half of the average fee before the law.

But as equity research firm Wedbush points out in an analyst note, the result for a company like Redbox is that interchange fees are actually going up from an average six cents per $1 transaction to 23 cents. In that light, it’s not hard to see why the company needed to pass on some of the costs to its customers.