Why Netflix Soared After Coinstar's Redbox Announcement
CNBC Media and Entertainment Reporter
This direct attack on Netflix sent Coinstar up as much as 4 percent, while Netflix shares traded nearly 8 percent higher.
The Redbox Instant announcement wasn't the only news moving the space today—Morgan Stanley's Scott Devitt issued a research note reiterating its "overweight" target on Netflix and raising its price target from $80 to $105.
At the core of this more optimistic outlook on Netflix is Devitt's confidence that Netflix's new deal with Walt Disney "may open the door for Netflix to sign additional direct output deals with other studios." (Read More: The Future of TV? Netflix Scores Massive Disney Deal.)
Devitt wrote that Netflix is well positioned to "disrupt the long-standing premium cable ecosystem." The fact that he said, "it's not about having everything, it's about having the best" seems particularly relevant now that we know the details of Redbox's library. And some of the details of the service further explain why its launch is not slamming Netflix's oft-slammed stock.
RedBox Instant does have certain significant advantages over Netflix. For one, it is charging less than Netflix. The price for unlimited streaming plus four one-night credits per month for DVDs from Redbox kiosks is just $8. In contrast, Netflix charges $8 for streaming and another $8 for DVD rental.
(Read More: Netflix Poison Pill Aims to Thwart Icahn Takeover,)
On the upside, Redbox integrates streaming and physical rental, allowing people to drop by a Redbox kiosk—a physical location Netflix just can't answer.
But Redbox Instant has some major disadvantages. First, the DVD rental will surely come with overage fees, which always annoy and frustrate consumers. Second, the service won't include TV shows when it launches—invitation-only at first—before the end of the year. Netflix frequently notes that its subscribers are increasingly watching TV shows.
Third and most important, the streaming video library is much smaller: about 5,500 movies from Warner Brothers, as well as Epix films from Paramount, MGM, and Lionsgate. Netflix, on the other hand, streams about 60,000 titles, including Disney movies thanks to its new deal. It also has a deep television library. (Read More: Breaking Down the Disney-Netflix Deal.)
And Redbox's content is not exclusive—Epix will offer its movies on TV and through its app three months earlier than Redbox, and other distributors can also license its content. And while Netflix's streaming app is available on pretty much every possible device—including Microsoft's Xbox and Sony's PlayStation3, Redbox streaming won't work on video game consoles.
All in, Netflix still has the major advantage. Redbox has a strong start, and the potential to build a real threat to Netflix down the line. But as the stocks' performance on Wednesday indicates, Redbox Instant is less of a near-term problem for Netflix than many may have feared.
—By CNBC's Julia Boorstin; Follow her on Twitter: @JBoorstin