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Redbox price increase: Will it stir backlash, too?

Redbox price increase, which begins Monday, will raise standard DVD rental from $1 to $1.20 a day. The Redbox price increase risks a consumer backlash similar to the one against Netflix.

By / October 29, 2011

Gary Cohen, senior vice president of marketing and customer experience at Redbox, poses by at a working kiosk at the company's offices in Oakbrook Terrace, Ill. Redbox is looking to pick up new customers dissatisfied with rival Netflix and its price increases and other moves. But a Redbox price increase, which goes into effect Monday, could spark a similar customer backlash.

Brian Kersey/AP/File

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SAN FRANCISCO

Redbox's DVD rental kiosks are attracting movie lovers fed up with Netflix's video subscription service. But now Redbox's owner, Coinstar Inc., is risking its own customer backlash by raising its prices, the same move that triggered Netflix's recent loss of 800,000 U.S. subscribers.

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The plot twist emerged Thursday in Coinstar's latest quarterly report. The company's earnings nearly doubled, largely because of robust growth at Redbox's more than 34,000 rental kiosks.

But the strong performance was upstaged by Redbox's decision to raise prices for standard DVDs by 20 percent beginning Monday.

The new rental rate will be $1.20 per day, instead of the current $1 daily rate. Redbox prices will remained unchanged for Blu-ray discs at $1.50 per day and video games at $2 per day.

Redbox's change isn't as jarring as what Netflix did last month, when it hiked prices as much as 60 percent and then irked subscribers even more by announcing a now-aborted plan to split its DVD rentals from its Internet video streaming service.

But it spooked investors, especially because Redbox appears to be picking up customers still stewing over the higher prices at Netflix. Coinstar's shares plunged 10 percent in Thursday's extended trading.

Unlike Netflix, Redbox tested the price increases in several cities during the past year to see how they would change rental patterns. Management concluded there only would be a slight drop-off in DVD rentals.

"We didn't take this lightly," Coinstar CEO Paul Davis said in a Thursday interview with The Associated Press.

Coinstar, which is based in Bellevue, Wash., is charging more to help offset higher expenses for DVDs and processing debit card transactions.

Netflix raised its prices in hopes of generating more revenue to license more movies and TV shows for streaming over high-speed Internet connections. The plan backfired, though, leaving Netflix on track to start losing money next year as it tries to repair a badly damaged brand.

Coinstar Inc. earned $37.1 million, or $1.18 per share, in the three months that ended in September. That compared with $19.5 million, or 60 cents per share, at the same time last year.

The results for the latest quarter blew by the average estimate of 88 cents per share among analysts surveyed by FactSet.

The company's revenue rose 22 percent from last year to $466 million, about $3 million above analyst projections. The Redbox kiosks were Coinstar's main attraction; revenue in the rental division climbed 28 percent in the quarter to $390 million.

Although Davis said the company couldn't know for certain, it appeared Netflix's customers losses are turning into Redbox's gains.