Coinstar Versus Netflix
Today I bought 800 shares of Coinstar @ 41.78/share. I could spend the money on Netflix @ 160/share but I think the future of DVD rental belongs to Coinstar and its Redbox vending machines.
Netflix did very well for themselves when they were competing against Blockbusters. They offer consumer a straight-forward DVD rental plan. Consumers clearly were willing to put up with delayed gratification in exchange for never having to worry about exorbitant late fees. In the competition between Netflix and Blockbusters, Netflix won.
The demise of Blockbusters and Netflix’s recent move into streaming content suggests that Netflix thinks their future competitors are Apple, Amazon, cable companies. Like everyone else, they think physical media is dead. The problem is that physical media is not dead. All those DVD and Blue Ray players are not suddenly obsolete just because Blockbuster filed bankruptcy.
Unlike Blockbusters, Coinstar has figured out a way to rent DVD to consumers without the cost of running costly physical stores. Coinstar does not need to generate revenue with late fees. They pass this saving to their customers. The Redbox vending machines we see popping up everywhere allow consumers to rent DVD and BlueRay disc at $1.00 and $1.50 per night respectively. There are no late fees and the disc is yours if you keep it for more than 30 days. This is a very reasonable proposition to consumers while allowing them to enjoy Hollywood movies without having to wait for it to come in the mail.
I have yet to meet a Redbox user who decided that Netflix is a better option. I don’t think Netflix will be as successful wooing Redbox users as they did wooing Blockbuster’s users. Converting a-la-carte user to a subscription user is not an easy task. Especially, when the Redbox a-la-carte model has proven itself with high customer satisfaction. Most people are willing pays subscriptions for things they use everyday, such as cable, phone, internet service. I don’t think DVD rental fit this category.
With the demise of Blockbusters, it seems to me like Redbox has the monopoly on the non-subscriber base. As long as Coinstar continue to make Redbox vending machines more accessible to consumers, they will discourage people from turning to alternatives that requires a subscription. Still, there will always be a segment of consumers who will subscribe. I think this segment will be small for the foreseeable future. If it does grow, Netflix will have to fight Apple, Amazon, cable companies for a piece of that pie. That is no easy task.
In the post-Blockbuster era, I see Coinstar competing directly with Netflix for consumer hearts and minds, while I don’t see Netflix fighting back. Winners never come out on top by ignoring its competition.
