Redbox revenue grows 39%, operating income more than triples

Apparently nobody told Redbox's customers that the DVD is dead.

First-quarter revenue for the movie-rental company surged 39% to $502.9 million, and its operating income increased 222% to $76.4 million, Redbox's parent company Coinstar Inc. said in financial results released Thursday.

Coinstar said April 12 that its first-quarter performance would be better than projected thanks in large part to growth at Redbox, but it didn't specify just how well the subsidiary, which operates 36,800 DVD kiosks, would do. (The kiosks also carry Blu-ray discs and video games.)

The improved performance comes after a price increase in late 2011 to $1.20 per night from $1 per night for DVDs. Coinstar previously said that customers reacted less negatively to the price increase than anticipated and that demand was particularly high for titles such as "Moneyball," "Puss In Boots," "50/50," "In Time," "Abduction" and "Mr. Popper's Penguins."

The results demonstrate that despite the ongoing decline in DVD sales and the closure of many DVD-rental stores, including thousands of Blockbuster locations, people still want to watch movies on discs. They just prefer to pay a low fee per night to rent DVDs at convenient locations such as grocery stores and drugstores, where Redbox kiosks are located.

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-- Ben Fritz

Photo: Anja Murphy returns videos to a Redbox kiosk in an Albertsons supermarket in Santa Monica. Credit: Lawrence K. Ho / Los Angeles Times

Redbox does better than expected in first quarter

Redbox's parent company said that its financial results were better than projected in the first three months of the year as more people rented DVDs from the ubiquitous kiosks. Also, a workaround in its ongoing feud with Warner Bros. proved cheaper than expected.

Coinstar Inc. said its first-quarter revenue would be between $567 million and $569.2 million and its earnings, before certain costs are deducted, would be between $127.9 million and $130.1 million. The Washington-based company had previously said those figures would be between $530 million and $555 million and $94 million to $104 million, respectively.

The unexpected good news sent Coinstar shares up 14% in after-hours trading Thursday after their closing at $61.31.

In its statement, Coinstar said that revenue from Redbox was higher than predicted in part because consumers did not react as negatively as expected to a price increase from $1 night to $1.20 per night implemented in late 2011.

Demand was particularly high for several titles highlighed by the company, including "Moneyball," "Puss In Boots," "50/50," "In Time," "Abduction" and "Mr. Popper's Penguins."

In addition, Redbox found it easier than expected to acquire Warner Bros. DVDs through alternative means after the studio refused to sell them to the kiosk company unless it agreed not to rent new movies until 60 days after they went on sale — a provision Redbox refused to accept. Instead, Redbox has bought Warner movies such as "Happy Feet Two" and "J. Edgar" from retail stores or wholesalers.

Universal Pictures, which renewed its contract with Redbox in March, declined to follow Warner's lead. It stuck with its existing "window" of 28 days from the time DVDs go on sale until they can be offered in discount kiosks.

The news puts to rest fears that Redbox would be harmed this year by its fight with Warner or consumers' defection to digital video-on-demand rental options. However Redbox's strong numbers could be more bad news for studios that see low-cost kiosk rentals as a factor in the ongoing decline of more profitable DVD sales.

Coinstar will report its complete first-quarter financial results April 26.

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— Ben Fritz

Photo: A family at a Redbox kiosk. Credit: Redbox.

Universal keeps peace with Redbox, spurning Warner Bros.

Universal Pictures has decided not to join forces with Warner Bros. in that studio's war with Redbox.

Universal, the studio behind "Safe House" and this weekend's "The Lorax," on Thursday announced an extension of its deal with the DVD rental kiosk company through August 2014 that will maintain the current 28-day wait from when DVDs go on sale until consumers can rent them from Redbox.

The news comes two months after rival studio Warner Bros. said it would only sell discs to Redbox if it agreed to double the length of the so-called rental "window" to 56 days. The Illinois-based company refused and is now buying Warner DVDs directly from retailers at a higher price than it would have paid the studio.

Executives at both Warner and Universal believe that delays on DVD rentals from Redbox, as well as from Netflix, incentivize consumers to buy the discs or rent films via video-on-demand. Both of those transactions are significantly more profitable to studios than kiosk rentals, which cost just $1.20 per night.

As a result, Universal had wanted to follow in Warner's footsteps and extend the delay on its movies to 56 days, said a person familiar with the thinking of executives at the studio who was not authorized to speak publicly. But Universal ultimately concluded that trying to force the issue could actually harm its bottom line, the person added.

The reason: Redbox has been successful in stocking its 35,400 kiosks with recent Warner releases such as "A Very Harold & Kumar 3-D Christmas" and "J. Edgar" in as little as a week after they went on sale. Universal executives concluded that rather than seeing their movies become available in Redbox's kiosks earlier than they currently are, it was better to stick with the current arrangement.

Galen Smith, senior vice president of Redbox, said his company is still making a profit on the Warner discs it buys at retail and is prepared to continue with its current arrangement indefinitely. The company presumably would have taken the same approach with Universal, as Smith made clear that a wait longer than four weeks is not acceptable to Redbox.

"In order to have a strong relationship with a studio, we're willing to extend to 28 days, but we think that is the right amount for our business," he said.

Universal's decision is sure to frustrate executives at Warner Bros., who are tolerating a battle with Redbox that hurts their studio's bottom line because they are standing on a principle that they believe will be beneficial in the long run. If Universal had held its ground on the 56-day window, it might have increased the pressure on Redbox to cave.

Twentieth Century Fox's deal with Redbox, which also includes a 28-day delay, expires in 2013. Walt Disney Co. Chief Executive Bob Iger recently said his studio intends to implement a 28-day delay soon as well. An agreement with Sony Pictures, which lets Redbox rent discs the same day they go on sale, expires in September.

Universal's agreement with Netflix expires in April. Warner successfully convinced Netflix to implement a 56-day delay on renting its DVDs through the mail. However, because it kept the 28-day window with Redbox, Universal may not be able to convince Netflix to accept a longer wait.

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Photo: A Redbox kiosk in San Rafael, Calif. Credit: Justin Sullivan / Getty Images.

Redbox agrees to buy NCR/Blockbuster kiosks as revenue surges

DVD sales may be in a tailspin, but consumers still love cheap rentals.

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.

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Photo: Redbox kiosks charged $1 per night for DVD rentals before last fall's price increase. Credit: Justin Sullivan / Getty Images

Redbox teaming with Verizon for digital movies service

Betting that a combination of Internet streaming and kiosk DVD rentals can give consumers the most complete package in a fractured media landscape, Redbox and Verizon are teaming on a movie rental service to launch in the second half of this year.

The still unnamed business will challenge Netflix by offering a combination of streaming video on digital devices along with rentals from Redbox's more than 35,000 kiosks for a flat monthly fee. The two companies believe that combining the two is the only way to give consumers a comprehensive selection of movies.

According to a regulatory filing by Redbox parent Coinstar, the joint venture will be owned 65% by Verizon and 35% by Coinstar. While full financial details were not immediately available, Coinstar is initially contributing $14 million for its stake, an amount expected to increase significantly as the joint venture's capital needs increase.

Due to complex rights issues, Netflix's streaming service offers a hodgepodge of older and independent films, as the rights to most new releases from major studios are controlled by pay cable networks like HBO for up to a decade after they appear in theaters.

Redbox's kiosks offer newer movies on DVD and Blu-ray at grocery stores and other retail locations that the company says is a five-minute or less drive from more than 70% of Americans. But the machines carry only about 200 titles, a fraction of the number that can be offered on the Internet.

"Consumers who instantly want a new release can go to a kiosk and get it," Paul Davis, chief executive of Redbox's parent company Coinstar Inc. said in an interview. "For titles that are a bit older, there will be streaming capability."

Netflix also offers DVDs along with Internet streaming, but customers need to wait at least two days from the time they return one disc until they receive a new one. In addition, the company is attempting to wind down its DVD-by-mail service and transition all of its customers to streaming, while Redbox wants to keep its kiosk business strong for years to come.

Redbox said in late 2010 that it would work with a partner to move into the digital space and has been seeking a deal ever since. It settled on Verizon last year. The telecom giant will handle technical infrastructure and acquire digital content rights from studios. Both companies will market the service to their customer bases.

Redbox has more than 30 million active customers and Verizon has nearly 109 million wireless and nearly 9 million broadband customers.

Redbox had initially aimed to debut its digital offering in 2011, not late 2012. Together with Verizon it will enter a competitive landscape for digital movie rentals that includes not only Netflix, which has nearly 25 million subscribers, but Amazon.com and Wal-Mart's Vudu.

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-- Ben Fritz

Photo: Anja Murphy returns videos to a Redbox kiosk in an Albertsons supermarket in Santa Monica. Credit: Lawrence K. Ho / Los Angeles Times

Redbox-Warner deal expires, ending 28-day delay

Warner Bros.' deal with Redbox has expired with the two companies still at odds over how long consumers should wait to rent DVDs for $1.20 a night.

As a result, kiosk rental company Redbox will have to buy Warner DVDs from retailers like Wal-Mart at a higher price but will no longer make customers wait 28 days after discs go on sale to rent them, as it did under a previous agreement with the studio.

The two sides were clashing earlier this month when Warner Bros. announced it would sell its DVDs and Blu-ray discs only to rental companies that agreed to wait until 56 days after they go on sale. Warner executives believe that the delay encourages consumers to buy DVDs and Blu-rays or rent movies via video-on-demand, both of which are more profitable transactions for the studio at a time when home entertainment revenue has been shrinking for years.

Two years ago, after a similar dispute, Redbox agreed to the 28-day delay in order to buy movies directly from Warner Bros. at a discount. But Redbox has concluded that 56 days is too long to make its consumers -- who often look for new releases in the red kiosks -- wait.

In a statement, Redbox senior vice president of marketing Gary Cohen said the company "will work to provide Warner Bros.' movies through alternate means." That will most likely mean buying the discs in bulk from retailers or other distributors who charge more than the studio when it sells directly.

A Warner Bros. spokesman fired back in a statement: "The consumer is best served by a windowing and pricing structure that ensures a healthy film business continuing to deliver quality movies. We hope to continue discussions with Redbox and reach a mutually agreed upon solution to this situation, but we fully intend to do what is best for our business, our consumers and the industry as a whole."

A person close to the matter but not authorized to speak publicly said the companies had continued talks in hopes of reaching a compromise throughout January. But the two sides could not find common ground and consequently don't currently plan on having more discussions.

Among other major retailers, Netflix agreed to abide by the 56-day delay, but Blockbuster has not, meaning it too will have to buy Warner discs from other sources.

Redbox currently has direct deals with all other Hollywood studios, but its agreement with Universal Pictures expires in April. Universal currently imposes a 28-day delay, and it's not yet known whether it will, like Warner, try to extend it longer.

The first Warner Bros. release that Redbox will have to acquire through "alternate means" is "A Very Harold & Kumar Christmas," which comes out on DVD on Feb. 7.

Separately, Redbox announced Tuesday that it extended a deal to feature its kiosks at 3,700 Wal-Mart stores through January 2015.

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Photo: A family at a Redbox kiosk. Credit: Redbox

Redbox, Warner Bros. headed to war over new DVD delay

This post has been updated. See the note below for details.

Warner Bros. and Redbox are about to re-ignite a battle over how long consumers have to wait to rent DVDs.

The Time Warner Inc.-owned studio is instituting a new policy that all DVD rental outlets must wait 56 days from the time the disc goes on sale at retail outlets Wal-Mart and Best Buy until consumers can rent them, according to people with knowledge of the matter who were not authorized to discuss it publicly. That's double the current 28-day "window."

A spokesman for Warner Bros.' home entertainment division declined to comment. But executives at the studio have previously said they were seeking a longer delay, which they believe will help boost flagging DVD sales and video-on-demand, both of which are more profitable than disc rentals.

Netflix has agreed to abide by the 56-day delay, one of the people close to the situation confirmed. 

However, Redbox will wait no longer than 28 days to rent discs, interim President Gregg Kaplan said in an interview this fall. A spokeswoman confirmed Friday that the company's position has not changed.

That means the $1-per-night kiosk company will no longer be able to get discs directly from Warner Bros. but will have to buy them in bulk from retail stores. Redbox did the same thing in 2010 when the parties were in a similar fight. Illinois-based Redbox ultimately agreed to the 28-day delay.

The new policy, expected to be announced next week at the Consumer Electronics Show in Las Vegas, is to take effect Feb. 1, the day after Warner Bros.' current deals with Netflix and Redbox expire.

It's also expected to extend to the nation's third-largest rental outlet, Blockbuster.

[Updated, 2:18 p.m., Jan. 6: A person familiar with the thinking of executives at Blockbuster said it too will not accept the 56-day delay and will buy Warner Bros. DVDs through alternative means.]

Previously, Blockbuster was the only major DVD renter that offered discs the same day they went on sale, an advantage studios gave the struggling company as it went through bankruptcy last year and was ultimately bought at auction by Dish.

Warner Bros.' new policy could soon be adopted by Universal Pictures. That studio's agreements with Redbox and Netflix, which include a similar 28-day delay, expire in April.

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Photo: Anja Murphy returns videos to a Redbox kiosk in an Albertsons supermarket in Santa Monica. Credit: Lawrence K. Ho / Los Angeles Times

'Just Go With It' tops 2011 Redbox rentals

Big-budget sequels ruled the box office this year, but it was romantic comedies that topped rentals at red kiosks.

The Adam Sandler-Jennifer Aniston comedy “Just Go With It” was the most rented movie at Redbox kiosks in 2011, according to new data released by the $1-per-night DVD company. Right behind was the Ashton Kutcher-Natalie Portman romantic comedy “No Strings Attached.”

All of the top five movies were those intended to make audiences laugh, a list that also included the animated comedy “Rango,” the romantic comedy “The Dilemma” and the buddy comedy “Due Date.”

Unsurprisingly, the top 10 movies were all released in theaters in early 2011 or late 2010, giving them more time in kiosks to be rented over and over. Several of Redbox’s top films were domestic box-office disappointments, including the Johnny Depp-Angelina Jolie thriller “The Tourist” and Seth Rogen’s action-comedy “The Green Hornet.”

Redbox also released information on the Los Angeles market, where audiences were a little more interested in raunchy comedy and heady drama, along with movies with a local angle.

The R-rated Cameron Diaz comedy “Bad Teacher,” released theatrically in June, was the third-most-popular Redbox film of the year in L.A., but didn’t make the top 10 nationwide. Also making the top 10 in L.A. only were “Battle: Los Angeles” and the critically acclaimed and award-winning “The Social Network.”

But not all kiosk rentals are equal. Studios that have signed agreements to let Redbox rent their DVDs at the same time that they go on sale had a clear advantage in the rankings. “Just Go With It” distributor Sony Pictures has such a deal with Redbox, as does “No Strings Attached” studio Paramount Pictures.

Universal Pictures, 20th Century Fox and Warner Bros., the three studios that mandate a 28-day delay for Redbox rentals after DVDs hit store shelves, captured only three of the top 10 spots nationwide. Executives at those studios believe Redbox’s low-priced rentals undercut more profitable DVD sales and video-on-demand rentals.

Below are the top ten movies rented on Redbox last year in the U.S.:

Redbox raises price to $1.20, readies for 2nd battle with studios

This story has been corrected. Please see note at bottom.

Say goodbye to $1-per-night DVD rentals.

Kiosk rental company Redbox said Thursday it is raising its standard price to $1.20 a day to cope with rising costs.

The company's first price increase since it launched eight years ago comes as Redbox reported strong results for its third quarter ended Sept. 30, possibly fueled by the gaffes of its primary competitor, subscription service Netflix. Redbox revenue during the quarter jumped 28% from a year earlier to $389.8 million, while operating income rose 56% to $83.5 million.

Redbox may face more challenges in the future, however, as several studios that already forbid it from renting their DVDs until 28 days after they go on sale -- including 20th Century Fox, Universal Pictures and Warner Bros. -- are considering extending that delay to as much as 60 days in an effort to boost more profitable sales and video-on-demand rentals.

Such a move would make it more difficult for Redbox, which has 34,400 kiosks nationwide, to draw consumers interested in recently released movies.

Warners' deal ends first, in January, followed by Universal's in April. Redbox Interim President Gregg Kaplan said in an interview that he would oppose any extension of the rental “window” and would consider buying discs from retail locations if those studios decline to sell to them directly for a period longer than 28 days.

Meanwhile, Paramount Pictures, Sony Pictures and Lionsgate have recently extended their agreements to allow Redbox to rent their movies the day they go on sale. Those studios believe they make more money by partnering with Redbox than they are losing from people who opt for low-cost rentals instead of pricier alternatives.

Shares in Redbox's parent company Coinstar Inc. slipped 10% in after-hours trading, as investors were disappointed in its guidance for the current quarter.

[Updated at 4:40 p.m.: An earlier version of this post incorrectly said that Redbox is raising the price of Blu-ray disc rentals to $2 per night. In fact they remain $1.50 per night.]

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Photo: Anja Murphy returns videos to a Redbox kiosk in an Albertsons supermarket in Santa Monica. Credit: Lawrence K. Ho / Los Angeles Times

Consumers now spending more renting movies than buying them

Hollywood’s home entertainment industry has passed a significant threshold: Americans for the first time  since 2001 spent more money renting movies than buying them.

The new balance is the result of a radical shift in consumer preferences over the past few years, fueled by the growing convenience of Netflix and Redbox rentals and spending cutbacks amid hard economic times. It’s also bad news for the studios, because DVD sales are far more profitable than rentals and have filled the coffers of Hollywood the past decade.

New data released Friday by the Digital Entertainment Group, an industry trade association, showed that people spent $4.2 billion renting movies in the first six months of 2011, compared with $4.1 billion buying them on disc or via digital download.

Total consumer spending to watch movies at home dropped 5%, continuing a long-declining trend. During the first half of 2010, spending declined 3.5%.

Comparisons were somewhat difficult, however, as this year’s crop of movies that hit shelves at Wal-Mart and iTunes from January to June generated 16% less at box office than the same period  last year.  Compared with hits released on DVD in spring 2010, such as “Avatar,” “The Twilight Saga: New Moon” and “The Blind Side,” this spring was short on blockbusters outside of “Harry Potter and the Deathly Hallows — Part 1.”