UPDATE, 3 PM: CEO Paul Davis says the Redbox price increase to $1.20 a night followed “several months of testing” and was designed to keep prices “as low as possible for consumers” as operating costs rise. The company says that the “vast majority” of transactions at its kiosks involve debit cards affected by the Durbin Amendment, as opposed to credit cards. Customers will still be able to rent for $1 a night through November if they reserve a DVD online and then pick it up at a kiosk. He added that the company plans to unveil a digital streaming plan by year’s end, calling it “a top priority for the company.” Davis says Redbox has seen business increase from consumers who felt “disenfranchised” by Netflix’s 60% price hike for its combo DVD rental and streaming service, but he can’t say how many people defected.
On the studio side, Davis says Paramount just extended its agreement to provide DVDs to Redbox the same day they’re available in stores through 2014. The studio will receive 100,000 shares of restricted stock in Coinstar, and can collect an additional 100,000 shares if it exercises its two options that each would extend the agreement by a year. Redbox’s day-and-date agreement with Sony runs through September 2012, and one with Lionsgate goes through August 2014. It has similar deals with Summit and Anchor Bay.
Not for nothing, but from the pattern in Coinstar trading it sure looks as though word of potentially upsetting news leaked out about an hour before the market close: Coinstar had been up all day but dropped on heavy volume around 3 ET to close down 2.3% — strange behavior on a day when the markets were up. Here’s one other possibility: Perhaps a lot of people were impressed by the blog item that BTIG’s Rich Greenfield posted around 2:30 calling on Warner Bros to make Redbox wait 60 days for DVDs.
PREVIOUS, 1:28 PM: The announcement seems to have thrown investors for a loop, even though parent company Coinstar reported 3Q earnings well above expectations. Coinstar shares are down 12% in initial after-hours trading. The company said it had net earnings of $37.1M, up 90.3% vs the same period last year, on revenues of $465.6M, up 22.5%. Earnings from continuing operations at $1.18 a share handily beat the 88 cents Wall Street expected. “Our Redbox business alone passed $1B in revenue year to date and became the leading renter of DVDs by staying focused on delivering great value and convenience to our consumers,” CEO Paul Davis said.
Still, he says that the company will increase DVD rental prices beginning October 31, although Blu-ray discs will remain $1.50 a night and video games will stay at $2. “This marks the first price increase for a Redbox standard-definition DVD rental in eight years,” Davis says. “The change is primarily due to the increase in operating expenses, including the recent increase in debit card interchange fees as a result of the Durbin Amendment.” The amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 enabled the Federal Reserve to regulate debit card interchange fees.
Coinstar says it expects to end 2011 reporting as much as $1.835B in revenues, down from three months ago, when it said that it might hit $1.85B. But earnings per share could hit $3.25, up from the maximum of $3.15 it had forecast.