Redbox Instant Is Netflix, Inc. (NFLX), With a Twist: Coinstar, Inc. (CSTR), Verizon Communications Inc. (VZ) and More

For one thing, the new Redbox Instant service is targeting high-margin DVD rentals. Unlike Netflix and its negative outlook toward the DVD market, which Hastings has overtly stated he wants little or nothing to do with, sending electronic DVD credits to customers for use with existing Redbox kiosks does away with the time and expense of mailing selections.

When Hastings was quoted last year saying, “We expect DVD subscribers to decline every quarter, forever,” he left little doubt what side of the fence he fell on. But why? Here we are a year later, and the number of Netflix DVD customers has dwindled to 8 million in its most recent quarter, compared to about 30 million paid, domestic, and international streaming customers. Yet even with its relatively small percentage of total customers, the DVD business still contributes more to Netflix’s bottom line than streaming does, largely because of its 50% contribution margins.

Now, let’s consider Redbox Instant’s take on DVD’s. The kiosks are already there, stocked with a wide selection of movies and games. With little to no additional expense, outstanding margins, and its only real competitor (Netflix) opting to get out of the DVD game, Redbox Instant’s commitment to those old-fashioned discs could prove very profitable. As Strickland said, “It’s the core equity brand of Redbox.”

For now, Strickland and Hastings are right: Redbox Instant isn’t a direct threat to Netflix, Inc. (NASDAQ:NFLX). But as streaming becomes less regulated, and Redbox Instant gets some experience under its belt, it won’t take much for Coinstar, Inc. (NASDAQ:CSTR) and Verizon Communications Inc. (NYSE:VZ) to expand Redbox Instant services if they decide to. Hastings may not be concerned, but then he’s rarely concerned about competitors it seems, including Amazon Prime. But if you’re a Netflix shareholder, don’t discount Redbox Instant. The Coinstar/Verizon partnership may not be on the same field as Netflix yet, but it’s definitely in the ballpark.

The article Redbox Instant Is Netflix, With a Twist originally appeared on Fool.com.

Fool contributor Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Amazon.com and Netflix.

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