Is Coinstar Murdering Netflix?

The stock prices of Netflix (NASDAQ:NFLX) and Coinstar (NASDAQ:CSTR) have headed in opposite directions since the beginning of the year — the former dropping almost 10 percent and the latter gaining nearly 40 percent. Why is it that two companies offering almost similar products have had vastly different fortunes? Coinstar, which owns the bargain DVD rental kiosk service Redbox, may actually have benefitted from the weak economy, according to some analysts, while Netflix, with its monthly subscriptions, suffered.

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“Redbox is more compeitive if you only watch a DVD a week,” Wedbush Securities analyst Michael Pachter told CNN Money. “The vast majority of people watch fewer than three movies a month. There is a reason Wal-Mart (NYSE:WMT) exists. People like the value proposition. And that’s the same reason why Redbox exists.”

Coinstar is also trying to make sure it does not get eaten up by the online video buzz, and partnered with Verizon (NYSE:VZ) to start a streaming-cum-DVD joint venture recently. The service is scheduled to launch later this year. However, Netflix, still recovering from the exit stream of subscribers after it decided to charge customers separately for DVDs and its streaming service, appears a little confused. It also faces a variety of competition in the streaming segment, with Amazon (NASDAQ:AMZN) and Hulu (NASDAQ:CMCSA) posing the biggest rivalries. It is also making huge investments in licensing from major movie studios and is even branching out into producing its own content. While both moves are with an eye on the long-term future, they are costing the company big in the short term.

Netflix profit forecasts for the next year have come down over the past few months, with most analysts pegging sales growth at 13 percent this year and 15 percent in 2013. In comparison, Coinstar is expected to see a 23 percent growth in sales this year, with earnings for 2012 rising by 35 percent. Pachter has a “Buy” rating on Coinstar and a “Sell” on Netflix, though he thinks the DVD still has some years to go before the trend passes.

Coinstar is also trying to diversify, announcing a deal with Starbucks (NASDAQ:SBUX) to offer Seattle’s Best Coffee through kiosks in supermarkets and grocery stores. Netflix may need to think of something as radical very soon if it hopes to survive in the rapidly growing but ultra competitive content conduit market.

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