Redbox next week will raise the daily rental prices of DVDs and Blu-ray Discs, followed by a 50% jump in videogame rental fees in January — moves that parent company Outerwall expects to have an “adverse impact” on rental volumes.
As of Dec. 2, 2014, the daily rental rate for DVDs will increase from $1.20 to $1.50, and the daily rental rate for a Blu-ray Disc will increase from $1.50 to $2. And starting Jan. 6, 2015, the daily rental rate for video games will increase from $2 to $3. The company added that prices may vary depending on location.
Outerwall’s stock jumped more than 7% Monday on the announcement, hitting $68.40 per share (up $4.84) in early trading.
“I would expect consumers that continue to use Redbox to adjust their usage patterns with reduced basket sizes and/or holding periods along with being more aggressive with promotional-offer usage,” B. Riley & Co. analyst Eric Wold wrote in a research note Monday.
Wold, who currently has a “neutral” rating on Outerwall, had already expected rental volume to be “flattish” for 2015 and 2016. The price hikes have the potential “for a medium- to longer-term acceleration in market share shift away from Redbox,” he said.
Redbox’s price hikes come after the DVD-kiosk rental service had been facing renewals on its distribution deals with several studios — with Wold raising the possibility that studios would be seeking higher prices per disc.
Lionsgate recently renewed its pact with Redbox last month through Sept. 2016. In addition, Universal in September extended the term of its agreement with Redbox through Dec. 31, 2015. Last week, Paramount also renewed its Redbox deal through the end of 2015, under which Outerwall will issue 50,000 vested shares of its common stock to the studio, according to a regulatory filing.
Outerwall said it picked the new price points after several months of market testing. The fee increases represent the first time Redbox has raised prices on Blu-ray discs and videogames, and only the second time that it’s raised prices on DVDs (after it increase those from $1 to $1.20 in 2011).
In announcing the price change, Outerwall did not update its fourth quarter 2014 guidance, saying it would provide more info on the next quarterly earnings call in early February 2015. While the company acknowledged the hikes will dampen rental volume, it anticipates that the price increases will “help offset future declines in the physical rental market.”
“With new-release movies for $1.50 a day, Redbox remains the best value in new-release home entertainment,” Outerwall CEO Scott Di Valerio said in a statement. “The pricing adjustments announced today will allow Redbox to continue to offer consumers high-quality movies and games while making investments to enhance the customer experience.”
Redbox operates kiosks at more than 35,000 locations, including select Walgreens, Walmart and McDonald’s locations.
Separately, in October, Outerwall announced the shutdown of its video-streaming service joint venture with Verizon Communications, after the service proved unable to compete with Netflix and other SVOD offerings.