Why Redbox Is Beating Netflix

Why Redbox Is Beating Netflix, Redbox often gets mocked for being “old-school,” but its business is growing rapidly. Shares of Netflix (NFLX) got off to a smoking start this year after a nightmarish 2011. But like the rest of the market (and especially momentum stocks), Netflix has come crashing back to Earth. The stock is now actually down almost 10% in 2012. Do investors think that the video market is dead?

Not necessarily.

Take a look at Coinstar (CSTR). The owner of the bargain DVD rental kiosk service Redbox is having a banner year. Shares are up nearly 40%. What gives? Well, I think one reason is that Coinstar, which also operates its namesake coin counting machines in mass market retailers, may be benefiting from the weakness in the economy.

A monthly subscription for Netflix could be the type of thing you cut if you’re worried about job stability, Europe’s financial woes and stock market volatility. But the occasional “splurge” on a movie for $1.20? That’s still doable.

“Redbox is more compeitive if you only watch a DVD a week. The vast majority of people watch fewer than 3 movies a month,” said Michael Pachter, an analyst with Wedbush Securities in Los Angeles. “There is a reason Wal-Mart exists. People like the value proposition. And that’s the same reason why Redbox exists.”

There’s also the fact that Coinstar is a more diverse company than Netflix. The company is even branching out into the coffee business. Earlier this month, Coinstar announced a deal with caffeine king Starbucks (SBUX) to offer Starbucks’ Seattle Best Coffee in new Rubi kiosks in supermarkets and grocery stores. Coinstar’s shares are up about 6% since the Starbucks news.

Source: CNNMoneyCoinstar and Redbox often get mocked for being so old-school, but not everybody wants to watch movies streaming on their smartphomes or iPad. Plus: Sometimes consumers actually have to leave their homes to shop for things. (Three cheers for analog retail! You go, Luddites!)

Still, it’s not as if Coinstar risks being lost in the online video revolution. Redbox inked a streaming/DVD joint venture with telecom giant Verizon (VZ) in February. The service is set to launch in the second half of the year.