Finally, Netflix gets a challenger

Netflix (NFLX) has been able to hold off attempts by Blockbuster (BBI) to challenge its CD-through-the-mail model. It has also added an internet streaming video product to fight VOD from cable and new companies that send movies over the internet.

Now, Netflix is being challenged by a low-tech, low-cost alternative for customers. Redbox, which has almost 15,000 rental kiosks from which it offers movies for as little as $1 a day, is beginning to take a large chunk of the CD market.

According to The New York Times, "Redbox is opening an average of one kiosk an hour to lure consumers, which has Reed Hastings, chief executive of Netflix, taking notice."

How does Netflix combat the low prices and large numbers of Redbox locations? Maybe it can't. The kiosks only hold a limited number of films, but if they are the most popular films it may not matter that NetFlix can offer movies from years ago. Netflix would have trouble marketing its service for $1 without severely undermining its margins.

Redbox shows that in a high-tech market, low-tech can be a winner, especially by offering low prices during a recession.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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