Redbox led Coinstar's DVD earnings surge

Kiosk revenue more than doubled while profit grew eightfold

By Danny King -- Video Business, 10/30/2008

OCT. 30 | Redbox helped majority owner Coinstar's DVD sales surge during the third quarter as the largest U.S. movie-rental kiosk operator leads an industry that appears to be pulling sales from chain stores.

Coinstar's third-quarter revenue from kiosk chains Redbox and DVDXpress, factoring year-earlier sales when Redbox wasn't majority owned by Coinstar, more than doubled to $104.2 million while operating profit surged eightfold to $18.7 million, Coinstar said in a statement. Redbox, which became majority owned by Coinstar during the first quarter, accounted for about 10,000 of the 11,800 kiosks owned or majority owned by Coinstar at the end of the third quarter.

Redbox leads a U.S. kiosk industry predicted to account for an increasing percentage of the movie-rental market as chain stores cut units. Coinstar, which owns 51% of Redbox, added 2,200 kiosks during the third quarter, in which same-store sales jumped 45%, the coin-exchange machine operator said on a conference call today.

"Factors driving success continue to be the terrific unit economics as I just described, the counter-cyclical nature of DVD rentals to the economy, slightly offset, particularly in the third quarter, by a sub-par, summer movie slate and

numerous distractions during the period including the Olympics and both

political conventions," said Paul Davis, chief operating officer at Coinstar, on the call.

U.S. consumers, attracted by movie-kiosk prices that are lower than movie rentals at stores such as Blockbuster, will spend $800 million at kiosks by 2010, triple the amount spent last year, according to Convergence Consulting Group. Meanwhile, store rental revenue, estimated at $5.4 billion last year, will fall to $3.1 billion by 2010, according to Convergence.

Redbox, which charges customers $1 a night to rent a movie from its machines and $7 to buy used DVDs, last month said it had about 10,000 machines, up from about 7,900 six months prior, and plans to have 12,000 by the end of the year. Still, the company at the end of June delayed filing its prospectus for a planned public offering after the stock markets had their worst second quarter in six years. Redbox's plans in May to file for an offering coincided with a credit crunch and surge in gas prices that helped to create a pullback in investment.

Earlier this month, Redbox sued Universal Studios Home Entertainment, alleging that the General Electric unit violated antitrust laws by insisting on a revenue-sharing agreement with Redbox that, among other things, enforces rental-date and resale restrictions.