Tablets Trouble, DVDs Divide, Gamers Grumble, and Patents Pressure

HP tabletCompanies do the darndest things, and last week was no exception. Here are some of the biggest surprises, blunders, and just flat-out boneheaded moves.

HP Starts a Tablet Tiff

The market's still reeling from Hewlett-Packard's (HPQ) ego-bruising decision to kill the TouchPad tablet less than two months into its summertime debut. The move naturally raises the question about the webOS platform that HP paid roughly $1 billion to acquire last year.

The news itself has been dissected to death by more capable souls than me, but here's where I think HP's strategy is as near-sighted as its trigger finger is itchy: Marking down the TouchPad to as little as $99 -- as HP did on Saturday -- is going to make life harder for the company than the monetary surrender.

What's going to happen to fledgling Android tablets being cranked out by HP's rivals? Won't they have to lower prices to compete with the gargantuan number of unsold webOS tablets being liquidated at $99 a piece?

Now let's connect another dot: If a price war breaks out on tablets, this will only have negative implications for HP's bread-and-butter PC and laptop business. Yes, I realize that HP is angling for a way out of that game, too, given its recent business service acquisitions, but it's only making its own bad luck at this point.

The Buck Stops Here

Heads turned to watch Redbox parent Coinstar (CSTR) after Merriman Capital analyst Eric Wold discovered that Redbox kiosks in Austin were testing out a daily rental rate of $1.20 on its DVDs, a 20% uptick to the long-standing $1 price point.
Is Redbox about to jack up its DVD rental prices?

Well, let's get one thing straight: This isn't new. Redbox has been tweaking price points -- from as little as $1.15 to as much as $1.50 -- in select guinea-pig cities dating as far back as last summer. It may very well bump its prices higher down the road, but Austin is just another test lab for Coinstar.

If I'm wrong about that, this would be disastrous for Redbox. Netflix (NFLX) is about to give Redbox an excellent opportunity to win new customers when its own price hike kicks in for couch potatoes on the popular dual plans that combine DVDs by mail and a smaller catalog of streaming titles. Netflix's new pricing will begin applying to existing subscribers next week. The last thing that Redbox wants to do is blur its value proposition when it's likely to win over a lot of Netflix's penny pinchers.

Retail Resilience Redefined

You're GameStop (GME), and you have just posted a jaw-dropping 9.1% decline in quarterly comparable-store sales.
Digital sales are going strong, but they're still too small to move the needle. Besides, strength in direct delivery only makes its small-box strip mall stores less relevant. High-margin used game and gear sales are holding up, but where will this business go when more folks are downloading games? Diehard gamers obviously aren't buying disc-based games the way they used to, and it's only going to get worse.

In comes CEO Paul Raines, and he somehow describes GameStop as a "resilient retail model" when every trend seems to be working against it on the brick-and-mortar front.

GameStop may grow to be a difference maker in the crowded realm of digital distribution, but let's not call the retail model resilient.

Intellectual Property Isn't Always the Property of Intellectuals

Google (GOOG) is forking over $12.5 billion for Droid maker Motorola Mobility (MMI), regulators willing.

The market was taken aback at first. Why is Google buying a smartphone maker? Won't it upset rival handset manufacturers on the Android platform? Well, it soon became clear that Google was actually looking out for Motorola's peers, since buried somewhere in its vault of 17,000 patents rests the ability to continue making Android phones without running afoul of certain ownership complications.

This still doesn't excuse the world's leading search engine from paying a chunky premium to protect a mobile operating system that it gives away. The return on its Motorola investment is going to take a long time to pay off financially ... if it ever does.

Somewhere out there, a patent attorney is belting out a menacing laugh.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article, except for Netflix. The Motley Fool owns shares of GameStop and Google. Motley Fool newsletter services have recommended buying shares of Google and Netflix, as well as buying puts in Netflix.

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