Netflix Competitor Raises Prices: Content Costs Impact Many Businesses

| About: Netflix, Inc. (NFLX)

In an interesting move announced Thursday, Netflix (NASDAQ:NFLX) competitor RedBox (owned by Coinstar (NASDAQ:CSTR)) is now raising prices by 20%. While not as steep a price increase as we saw with Netflix, it is a sizable increase nonetheless.

Netflix took heat earlier this year when they nearly doubled prices. The increase led to instant upheaval by consumers. Later Netflix announced another mistake by stating that its DVD by mail business, Qwickster, would run under a new name, which again caused the company to suffer the wrath of consumers. The bad news culminated when the Netflix announced their Q3 results last week.

Ever since Netflix lost its luster other companies have been using the mistakes as a lesson or opportunity to capitalize on. DISH Network (NASDAQ:DISH) used its stake in Blockbuster to offer a bundled package at Netflix's old price point, while companies like Sirius XM (NASDAQ:SIRI) used the lessons learned to bring out only a modest $1.54 price increase instead of the $3 that the company was rumored to be considering.

The irony of this is that the move made by RedBox actually confirms the arguments Netflix made in announcing the new business model and pricing. These companies are suffering from higher content costs and need to bring in more revenue to maintain growth and/or profits.

The issues central to the movie rental business is also being fought by another entertainment medium, that being radio. Internet radio provider Pandora (NYSE:P) has been criticized from a business standpoint because the royalty costs are excessive and represent a tremendous amount of expense. Satellite radio provider Sirius XM is trying to cut direct deals with record labels to minimize costs.

The battle lines seem to shaping up in both video rentals as well as audio entertainment. Many studios forbid Redbox from renting new release DVD until 28 days after the movie is available on DVD. Some studios are even considering extending that blackout to 60 days. Radio is not immune to this type of strategy either. Adelle does not allow her content on Spotify and the most recent album by ColdPlay will not be found on many streaming services such as Pandora in an effort to sell more CDs.

One thing is certain. Royalties, rights and pricing will be central issues for quite some time to come for content distributors.

Disclosure: I am long SIRI.