Article

Will Netflix price hike drive up kiosk rentals?

The consumer backlash against Netflix's recent price hike could drive more business to DVD-rental kiosks.

July 27, 2011

by Suzanne Cluckey

Contributing Writer

Netflix has taken a thrashing in the court of public opinion since the company announced its new price structuring two weeks ago. An increase of roughly 61 percent in fees resulted in an outpouring of customer ire on the company's Facebook announcement, which is currently up to almost 81,000 comments, not counting deleted posts.

Many of the posts came from infuriated Netflix customers who had canceled their service, or were planning to at the end of their contract. Many said they would be taking their disk rental business to Blockbuster and redbox and finding alternative sources for streaming video:

"Paying an additional 8 dollars a month for 1 dvd at a time is stupid, especially, when I can simply go to a redbox and get one today for just $1," wrote one customer. "Once I find a suitable alternative to streaming, I will cancel my many-year subscription to netflix."

A BrandIndex survey from online market research firm YouGov found that Netflix had dropped from the top spot in brand perception among consumers to the bottom of the ratings, virtually tied with Blockbuster for last place. This left redbox solidly at the top of the brand ratings, followed by DirecTV at a distant second.

Shareholders initially rewarded the Netflix price restructuring with a 4 percent rise in share prices, to $304.79. But by July 26, the stock had retreated 12 percent, to $266.91, with investors spooked by a consumer backlash that shareholders may have taken as a harbinger that Netflix customers would turn to other sources for game and DVD rentals and streaming video.

Although redbox declined to publicly comment on the possible windfall to its kiosk business resulting from consumers' anger toward Netflix, the company is clearly angling to make the most of the opportunity to capture its competitor's defecting subscribers, as was reflected in a statement from the redbox public relations department.

"Redbox and Netflix share the goal of giving movie lovers access to entertainment, and consumers will ultimately choose the price and model that fits their life." The statement added, "With more than 27,000 locations nationwide, redbox makes it easy for our consumers to find the hottest new release movies and games for as low as a buck a night. Redbox is located where America shops."

Redbox Senior Public Relations Manager Kate Brennan said her company's Facebook page was peppered with comments from Netflix refugees who said they intended to make redbox their DVD-rental source from now on. The company may also be hoping to convert Netflix streaming video users with a planned streaming service it says it will launch later this year. In June, the company added game rentals to entice customers who might otherwise migrate to Blockbuster.

Marc Lumpkin, director of corporate communications for Blockbuster parent company DISH Network, said that the company could not comment on a possible bump in DVD kiosk business due to the Blockbuster's legal action against NCR seeking to remove the Blockbuster Express name from NCR movie-rental kiosks.

However Lumpkin said that Blockbuster saw opportunity for the company's network of 9,500 Blockbuster Express kiosks.

"Certainly I think in the long run we would be happy to be in the kiosk business just as much as we are in the store business," he said. To increase its chances of capturing unhappy Netflix users, Blockbuster rolled out an offer two days after the Netflix price hike that would give defecting customers a 30-day free trial of either of its Total Access plans.

At least in the short run, it does seem that physical media-rental kiosks could see a bump in business due to Netflix pricing fallout. Consumers are not quite ready to give up their physical media. The Entertainment Merchants Association (EMA) estimated that 80 percent of American homes contain a DVD or Blu-ray player. And, according to a study commissioned by redbox, it could be another decade before digital distribution turns any provider into the iTunes of home video. Finally, there is the fact that the motion picture industry is extremely reluctant to let go of the $16.3 million that it pockets from DVD sales, according to figures from the Digital Entertainment Group.

The final determination of whether rental kiosks will benefit from the Netflix debacle may be up to Netflix itself. A mea culpa and a rate adjustment could win back some customers and slow down churn. Outperforming competitors in customer service would also help. But if the company continues with its stated objective of phasing out physical media, it seems quite possible that consumers who simply are not ready — or able — to buy into a streaming video service will begin to see more rental kiosks dotting the local landscape.