That evidence was clear Monday as Redbox, the nation's largest DVD rental company, agreed to spend up to $100 million to acquire Blockbuster-branded DVD kiosks operated by its largest rival, NCR Corp., adding about 9,000 machines to its existing 35,400.
The deal was announced the same day that Redbox's parent company, Coinstar Inc., reported that revenue for the $1.20-per-night DVD rental business surged 40% during the final three months of 2011 to $445.6 million and 35% for the year to $1.56 billion.
Redbox's operating income surged 43% during the fourth quarter to $76.6 million and 50% for the full year to $284.9 million, according to financial results released Friday.
Combined DVD and Blu-ray sales, meanwhile, dropped 12% last year in the U.S.
Some other companies have seen rentals drop as well. Blockbuster Inc., for instance, filed for bankruptcy reorganization in late 2010 and shut thousands of stores before being acquired last year by Dish Network, which is closing additional locations.
Netflix lost 2.76 million DVD subscribers in the fourth quarter and is shifting its focus to streaming.
Redbox's decision to invest further in the kiosk business -- and to make DVD rentals part of a new subscription streaming offering it will launch with Verizon later this year -- indicates it has a different view.
“It’s a testament to the fact that we believe in the physical space,” Coinstar Chief Executive Paul Davis said.
In addition to strong consumer demand, Redbox attributed its improved performance to a price increase last fall to $1.20 per night from $1, the installation of about 5,000 new kiosks and the addition of video game rentals.
On a conference call with Wall Street analysts Monday, Davis said Redbox intends to rebrand NCR's Blockbuster kiosks with the Redbox name but has yet to determine how many of the 9,000 kiosks it will continue operating. The company is awaiting regulatory approval for the purchase, which is expected to occur by this year's third quarter.
In large part because of the stronger-than-expected performance by Redbox, Coinstar stock surged 17% in after-hours trading Monday. Before financial results were released, the shares closed up 2% at $50.56.
-- Ben Fritz
Photo: Redbox kiosks charged $1 per night for DVD rentals before last fall's price increase. Credit: Justin Sullivan / Getty Images