Redbox Q3 revenue jumps 90%

PHYSICAL: Coinstar unit boosts kiosk count by 75% to 20,600 units

By Danny King -- Video Business, 11/5/2009

NOV. 5 | PHYSICAL: Redbox’s third-quarter sales surged 90% from a year earlier as the largest U.S. movie-rental kiosk operator added 2,700 machines during the quarter and boosted the revenue it gets from each machine, according to parent company Coinstar.

Coinstar’s third-quarter sales from Redbox and the far-smaller DVDXpress brands jumped to $198.1 million from $104.2 million a year earlier, the company said in a statement today. Coinstar, which expanded its DVD kiosk count by 75% to 20,600 units and boosted same-store sales 26%, doubled its operating income from Redbox to $34.5 million as sales growth outpaced administration and marketing costs and far offset the effect of the lower prices Redbox gets on the DVD-resale market, Coinstar chief financial officer John Harvey said on a conference call with analysts.

Redbox, which has pulled more business from video-rental store chains like Blockbuster than from by-mail subscription services like Netflix, has led growth in the U.S. kiosk industry, which is expected to expand over the next few years as video store chains close underperforming stores. U.S. rental revenue from kiosks is forecast to more than double between last year and 2011 to $1 billion, but traditional in-store sales are expected to fall during the same period, Adams Media Research said in March.

"We think there's a lot of white space" to grow the kiosk market, said Coinstar CEO Paul Davis, who estimated that Redbox has about 15% of the U.S. DVD rental market and said the "nascent" digital-delivery market wouldn't soon pose a threat to demand. With Coinstar estimating that its 2009 DVD revenue will be about $770 million, the company is set to do about $230 million in fourth-quarter DVD revenue, up 72% from a year earlier. 

Studios such as Warner Home Video, 20th Century Fox Home Entertainment and Universal Studios Home Entertainment have taken issue with Redbox’s $1 a night rentals and are prohibiting the sale of their new DVD releases to kiosk operators until at least four weeks after street date. Redbox, which sued Universal last year, filed similar claims against Fox and Warner in August and, by the end of last month, secured so-called “workaround” agreements to get some titles on street date from those studios in its machines, said Davis, who admitted to having some "difficulty" securing enough copies of new titles from those studios to satisfy customer demand.

"We understand the value of fostering collaborative relationships with the studios," said Davis, alluding to recent agreements that will give Redbox at least temporary access to street-date titles from Paramount Pictures, Lionsgate and Sony Pictures Home Entertainment. "We simply want to be treated like other rentailers."

The company, whose customers rent titles for an average of two nights for a $2 transaction average, also has started testing different pricing levels, charging a $1.50 nightly rate in Albuquerque, N.M., and $2 for first-night rentals in Harrisburg, Penn., with $1 a night pricing thereafter.

Redbox is being chased in the kiosk market by NCR and Blockbuster, which began a partnership last year with plans to deploy about 2,500 Blockbuster Express machines by the end of the year and as many as 10,000 by the middle of 2010.

NCR said last month that it was introducing a new outdoor DVD rental kiosk that can hold as many as 950 discs, or about 35% more than the 700 copies in most kiosks currently in the market, as well as dispense sell-through packages.

Overall, Coinstar’s third-quarter net income jumped ninefold to $41.4 million, or $1.34 a share, from $4.51 million, or 16¢, a year earlier, as revenue rose 45% to $296 million. The company, which took a $31.2 million gain on the entertainment services unit it sold in September, was expected to earn 25¢ a share on $331.9 million in sales.

The company also forecast an earnings range with a midpoint of $1.93 a share on about $1.14 billion in revenue. Coinstar also said it was appointing James Blanda, a partner at executive services firm Tatum and former controller at Sears Roebuck, as interim chief financial officer while Coinstar looks for a permanent replacement for financial chief Harvey, who is stepping down to be closer to his family in the Chicago area.