Netflix (NASDAQ: NFLX) CEO Reed Hastings says his biggest competitor isn't the one that his company is most often grouped with. It's not Blockbuster (NYSE: BBI), the largest brick-and-mortar rental chain, and it's not the internet -- where technological gains are making streaming video the wave of the future.
No, according to Mr. Hastings, the biggest competitor is Coinstar (NASDAQ: CSTR), the coin counting business that also happens to own Redbox, the network of 15,400 vending machines that rent movies for $1 per night. Redbox is installing another machine every hour.
"By the end of the year, kiosks will likely be our No. 1 competitor," Hastings said in a recent conference call. "There are already more kiosks in America than video stores."
The most painful part for Mr. Hastings has to be the fact that Netflix could have owned Redbox for a song just a few years ago. In 2005, Coinstar paid just $20 million for a 47.3% stake in the company. Coinstar paid many times that to acquire the remaining 52.7% of the company earlier this year, and there's now some talk that a spin-off of Redbox could be the best deal for Coinstar shareholders.
The long-term future for Redbox though is bleak. At some point, DVDs will become completely obsolete and they'll be left with a bunch of useless machines that don't generate any revenue.
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