You may have heard about the new debit card fee rule referred to above. It limits the interchange fees that retailers must pay banks when debit cards are swiped. It has already agitated consumers since its implementation earlier this month. You probably recall that Bank of America and others said that they will soon charge customers a fee to use their debit card in response to the new rules. This same rule also had a hand in prompting Redbox's rate hike.

How could this be? The Durbin Amendment also creates a debit interchange fee floor, which makes small transactions -- like those to rent a DVD from Redbox -- much more costly for retailers. John Kraft, an equity research analyst at D.A. Davison & Co, estimates that the new law will increase transaction fees for Redbox by about 10 cents per rental when debit is used. He concludes that this will average out to all rentals being about 5 cents more expensive.



Netflix Provided Cover

Under the circumstances, Redbox might not feel so worried about scaring off customers with a small price increase: its competitor Netflix continues to suffer from a price hike debacle. Redbox's price hike may appear much smaller than Netflix's increase. For a customer who uses Redbox once a week and returns the movie on time, they'll pay around $1 more per month. A Netflix subscriber on its basic plan would pay about $6 more per month after its price change. You would have to add together the rate increase on 30 DVDs from Redbox to equal Netflix's rate hike.

But Is Redbox's Move Really a Wise One?

The cover that Netflix appears to provide might not be so effective, however. The analysis above doesn't go deep enough. Remember, Netflix is really only charging more money for DVD plus streaming service. In fact, Netflix customers who just wants DVDs -- which is all that Redbox offers -- would actually see their monthly bill decline after Netflix's price changes. Before, they couldn't strip out streaming and paid $9.99 per month. After the change, they could subscribe to DVDs only for just $7.99.

Suddenly, the calculus for pure DVD-rental might actually lean in Netflix's favor. Before, $7.99 would get you about eight DVDs from Redbox. After its price hike, $7.99 will only get you six movies and change. For the same price through Netflix, you can get as many DVDs as you can watch and return in a month, which could theoretically be as many as nine. With Netflix, you also don't have to worry about late fees if you can't watch your rental promptly.

Many consumers remain very angry about Netflix's rate hike. Redbox doesn't want any of that animosity directed towards it -- even if its customers aren't quite as furious. After all, movie renters have a viable third option: Blockbuster. The company, now owned by Dish Network, is loving all of these fee increases. The movie rental veteran recently lowered its rental price to 99 cents per day. At a time when consumers have become savvy about finding the lowest prices, Redbox may have been wise to keep its rental fee more competitive.