$1 Movie Rental Costs Customers Hundreds
I-Team Investigates redbox Rental

By Reported by Jeremy Finley
WSMV-TV
updated 12:24 p.m. ET, Fri., Nov . 6, 2009
NASHVILLE, Tenn. – For Sean Johnson, it was the cost.

“It was very cheap,” said Johnson.

I-Team: Redbox Customers Overcharged

For Michelle McCarrol, it was the ease.

“Well, it was convenient,” said McCarrol.

A lot of people like the convenience of redbox: A card is swiped at one of the machines for a $1, one-day rental.

Allen Barry was a fan, too. But the movie rental company has some former customers seeing red.

“If you want to enjoy provoking any of us, in the family,” said Barry, “we need to get into a conversation about redbox.”

The Better Business Bureau revoked the company’s accreditation, giving redbox a D-rating due to nearly 300 complaints filed with the BBB and for failing to comply with the Bureau’s standards.

That D-minus rating comes from the BBB out of Illinois, where the company is headquartered. The bureau said because of the volume of complaints and because redbox didn’t comply with the bureau’s standards, the company still has the D-minus rating.

The customers the Channel 4 I-Team talked to claimed the company charged them for not returning movies that the customers said they returned within two days.

McCarrol said the monitor on the redbox stand she used indicated she had returned the movies. She has instructed her bank to fight the charges.

“My bank said, ‘Oh, redbox DVD? We have a lot of complaints on them,’” McCarrol said.

The basic charge is $1 a day for one redbox movie rental.

An additional dollar is charged for each night the movie is kept. If it isn’t returned, redbox charges the card used the full purchase price of the movie, usually about $28.

The three people the I-Team spoke with live in different towns and used at least three different redbox rental stands.

All claimed to have returned their movies within one or two days. But they weren’t charged one or two dollars: Their debit cards were charged for the full purchase price of the movies because the machines showed they didn’t return the DVDs.

The unexpected charge then triggered overdraft fees for some customers.

Johnson is on disability and couldn’t afford the overdraft fee.

“With overdrafts, it knocked me down to, like, $197,” Johnson said.

It isn’t just affecting people with limited funds. Barry said he usually puts a $20 allowance in his teenage daughter’s bank account each week. But when redbox mistakenly said she didn’t return two movies, it cleaned out her account and triggered big overdraft fees.

Even after the company refunded the $60 cost for the two movies, it did nothing about the much larger overdraft fees.

“That $1 became more like $150,” said Barry.

“We acknowledge that occasionally issues arise due to both user error and, in some cases, redbox error,” the company said in a statement. “Regarding refunding overdraft charges, we will refund customers if and when an overdraft occurs as a result of a redbox error.”

Johnson is still waiting to see if he’ll be refunded for the movies he said he returned and for the overdraft fees.

“You live on a check month to month, and then you have something like this to come in and set you back, you know, in a big way, it’s really rough,” he said.

To avoid being surprised by a bank account charged more than expected, users should enter their e-mail address on the video rental screen to ensure receiving an e-mail alert. Some of the customers the I-Team talked with did not take that precaution.

Redbox said it is working to improve its rating with the BBB and that it has resolved the majority of the complaints registered with the BBB.

http://www.msnbc.msn.com/id/33699893/-(See full story)

There is a reason why the stock is down 10% since the financials were released.

The $1 a day price model is not sustainable and they further indicate that they expect additional problems if they can not obtain their product on release date.

“Our inability to receive delivery of DVDs on the date of their initial release to the general public, or shortly thereafter, for home entertainment viewing could adversely affect our DVD services business.”

This is a company that has a $100 million class action lawsuit against it for illegally charging late fees, is deeply in debt thanks to the costs of putting their entire network of machines in place, and has potential problems now and in the future of getting DVDs on release date. This is just starting to happen to them so the true impact will be felt in future financial reporting periods.

They have people conditioned to pay only $1 a day, because that is what Redbox wants you to think your entertainment dollar is worth. Now they are test marketing the concept of higher pricing in certain areas and if that doesn’t work out for them, you might see Redbox becoming nothing but a scrap heap of metal in the future.

Read through the actual report and things are not so happy and shiny.

Net income per machine is under $100.00 per month. That means there is no margin for error in the Redbox model. If your costs go up because, say, the studios make life difficult for you, then you are done.

I am glad to see that while they did not guarantee that the price tests would be implemented across America, the implication was certainly there. They need to do this sooner rather than later to get customers used to it.

The stock dropped because 1) they missed their numbers and 2) the investors can see the writing on the wall even though Coinstar is trying to hide things from them.