Remember when Netflix (NFLX) increased the price of its bundle offering? Two things happened; first, Netflix consumers did get angry, canceling their subscriptions to the company, driving its stock sharply lower. Second, some of these subscribers headed for the Coinstar (CSTR) kiosks, pushing the stock of the company sharply higher.
Yesterday, it was Coinstar’s turn to raise the price of its movie rentals, from $1 to $1.20. What did it happen after the announcement? Coinstar stockholders heading for the exits, driving the stock sharply lower in after hours — though the company reported sharply higher profits.
Obviously, what worries Coinstar stockholders is that the company’s customers will abandon the kiosks and run for Netflix’s envelops. While it is too early to know whether this will be the case, we do that Coinstar’s price move could help Netflix regain customer confidence. Here is why:
Both Coinstar and Netflix are selling content developed by studios like CBS, Starz (LSTZA), and Disney (DIS), which it must acquire at a higher cost. This means that both companies must pass at least one portion of this extra cost to their own customers. It is that simple. All it takes for the leadership of Netflix is to explain it to its customers.
The bottom line: In view of Netflix's huge price correction, Netflix is a better bet than Coinstar.
Disclosure: I am short NFLX. Active investor, may change positions at any time.