Netflix customers headed for greener pastures in a record number according to the latest data provided by the Internet streaming and DVD rental giant. However, customers who shed the DVD portion of Netflix were in for a bit of a surprise when another DVD rental powerhouse, Redbox, announced a coming price hike. Rebox is considered by many to be the main alternative to the Netflix DVD by mail rental system.
Redbox has handled the price hike with a bit of an easy touch, which is unlike the Netflix blog post from July. Redbox comes right out and states that increased operating costs are the reason for the hike, whereas Netflix tap danced around the reason for the hike. Had Netflix just stated reasons for the hike perhaps customer backlash would not have been as bad. Instead of focusing on factors like improved service or a better catalog, the Netflix blog post left many folks feeling a 60 percent price hike was just not worth the aggravation or expense.
While the Redbox price hike is 20 percent, which raises the cost of renting a DVD to $1.20, the company still offers a savings over the Netflix one-DVD-at-a-time plan. Netflix was at the mercy of the USPS and customers often had to wait a day for movie to arrive, watch it the day it arrived, and ship the movie back for maximum return on investment. On a three day cycle that usually meant a maximum of ten movies a month. However, hiccups like Sunday or holidays where no mail was delivered could cause havoc to even the best laid plan. So for the $7.99 plan of Netflix, the numbers are difficult to add up unless everything goes perfectly.
Redbox obviously learned from the experience that Netflix is going through. While some degree of backlash can probably be expected, at least the frequency of Redbox rentals can be directly controlled. Plus, there is more than enough promotional codes floating around to allow Redbox users free movies. The company sent their email, stated the reason behind the hike and gave as much information as was necessary.
Perhaps the true backlash from the company will not come from customers, but from investors. Netflix has seen $12 billion in company value vanish over the past three months or so, and Coinstar, the company which owns Redbox, could face similar trouble with regards to stock price. While long-term ramifications will remain to be seen for both companies, it would seem that Redbox has the better business model to hike prices.