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Originally published October 27, 2011 at 2:08 PM | Page modified October 28, 2011 at 7:07 PM

Soon playing at Redbox: price increase for DVDs

Coinstar, which owns the Redbox business, said it's boosting the rental price of a standard-definition DVD to $1.20 from $1. CEO Paul Davis said a change in debit-card interchange fees was partly to blame.

Seattle Times business reporter

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Starting Monday, Redbox customers will have to dig a little deeper into their pockets for a movie rental.

Bellevue-based Coinstar, which owns the Redbox business, said Thursday it's boosting the price of a standard-definition DVD to $1.20 from $1 because of an increase in operating expenses.

Chief Executive Paul Davis said a change in debit-card interchange fees was partly to blame. In a conference call with analysts, he specifically mentioned the so-called Durbin Amendment, a proposal by Illinois Sen. Dick Durbin that became law Oct. 1.

The new law reduces the average amount that retailers pay for debit-card transactions, so banks are making up for the payment shortfall elsewhere; Coinstar is passing that increased cost on to its Redbox customers.

The Redbox price increase, announced in Coinstar's quarterly-earnings report, comes after "several months of testing" and is meant to strike "the right balance between keeping prices lower while addressing rising operating costs," Davis said.

He also noted it was Redbox's first price increase in eight years.

Coinstar will try to lessen the blow through November by charging only $1 for the first time for customers who reserve a DVD online and pick it up at a Redbox machine. Additional nights will cost $1.20.

Prices for Blu-ray DVDs will stay at $1.50 a night and video-game rentals will remain at $2.

Coinstar said its third-quarter profit shot up 90 percent to $37.1 million, or $1.18 a share, well above the 88 cents expected on Wall Street. Revenue rose 22 percent to $465.6 million.

Redbox, which accounted for 84 percent of Coinstar's revenue, likely benefited from a customer backlash at Netflix. Last summer, the nation's largest video subscription service announced plans to raise prices by as much as 60 percent starting Sept. 1.

Netflix revealed Monday that it lost 800,000 customers from late June to late September and could lose 3.6 million more by year's end.

Davis, who was asked Thursday how many Netflix customers had defected to Redbox, said he could not give a precise number, but that he was encouraged by a significant increase in unique credit cards and email addresses.

"We've gained market share versus prior year, while all of our competitors have lost," Davis said.

"So we're going to continue to work really, really hard to try to draw in those disenfranchised consumers."

Despite a near-doubling of Coinstar's profit, Wall Street appeared disappointed, sending shares down $5.27, or 10 percent, to $47.68 in after-hours trading Thursday.

That was on top of a $1.25 decline to $52.95 during regular trading. Coinstar released its results after Thursday's regular session.

The stock has traded between $37.43 and $67.56 in the past 52 weeks.

While Coinstar's fourth-quarter revenue projection beat expectations, its profit forecast fell below analysts' estimate.

Analyst John Kraft, who follows Coinstar for D.A. Davidson in Lake Oswego, Ore., said he thinks Redbox will lose some customers because of the price increase, but not enough to hurt its bottom line.

He called the Durbin Amendment a "massive hit" to Redbox.

"What essentially has happened is that debit-card fees now are based on a flat rate rather than a percentage of each transaction," he said. If, as with Redbox, "your price point is a dollar, and the flat fee is 25 cents, that's kind of a big deal, especially when you were paying only 5 or 6 cents before."

Also Thursday, Coinstar said it will introduce a plan for streaming video online by the end of December, but gave no additional details.

"We'll continue to approach our plans in a deliberate and thoughtful manner, and that takes time," Davis said.

Amy Martinez: 206-464-2923 or amartinez@seattletimes.com

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