Entertainment Industry

Category: Redbox

Redbox revenue, operating income soar

Redbox22 Redbox's $1-per-night kiosks continue to boom.

Parent company Coinstar Inc. reported Thursday that Redbox revenue was $363.9 million in the three months ended June 30, up 34% from the same period a year ago. Operating income surged 99% to $74 million.

The company now has about 33,000 DVD kiosks, up from 31,800 three months ago.

It recently rolled out video game rentals to 21,000 kiosk locations (including some with multiple kiosks) and said Thursday that it will mix games in with DVDs at an additional 5,000 by Monday.

Last week Coinstar said that Redbox president Mitch Lowe was unexpectedly departing and gave an advance look at its financial results, which disappointed Wall Street. Its stock fell 8% the next day.

Its final results reported Thursday were in line with last week's preliminary numbers. Revenue for Washington-based Coinstar, which also operates coin-counting kiosks, grew 27% to $435.2 million. Net income doubled to $26.6 million.

Coinstar stock closed up 2% at $51.33 on Thursday before financial results were released.

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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 president leaves; parent company's stock drops 10%

Redbox44The president of Redbox unexpectedly said he would be leaving the kiosk DVD rental company as the firm's parent company, Coinstar Inc., reported preliminary results for the second quarter that disappointed Wall Street.

Coinstar stock then plummeted 10% in after-hours trading.

The company announced Mitch Lowe's resignation Wednesday along with early financial results for the quarter ended June 30. Revenue was between $434 million and $436 million, Coinstar said, lower than a consensus estimate among Wall Street analysts of $446 million.

Earnings per share, meanwhile, were between 96 cents and $1, higher than analysts' estimate of 81 cents.

Executives at two Hollywood studios that work closely with Redbox said they were surprised by the news of Lowe's departure. He has been with the company since 2003, when it was owned by McDonald's and had only a dozen kiosks. Redbox, which has transformed the home entertainment business with its $1-a-night rentals, now has more than 31,800 kiosks in grocery stores, convenience stores and other retail locations.

Lowe regularly commuted to Redbox's Illinois headquarters from Mill Valley, Calif. He previously was a founding executive at Netflix, which is headquartered close to that Northern California city.

Coinstar said in a statement that Lowe resigned "to pursue entrepreneurial and other interests," but did not provide more details. The company said he would stay in his post until a new executive had been found and that an external search had already begun.

Together with Netflix, Redbox dominates the DVD rental business. Its growth was a key factor in the bankruptcy of Blockbuster, since acquired by Dish Network, and the shutdown of Hollywood Video.

However, many in Hollywood have become concerned that its $1-per-night rentals undermine more profitable video-on-demand transactions and disc sales. As a result, four of the six major movie studios either forbid or impose financial incentives discouraging Redbox from renting their movies until 28 days after the DVD goes on sale.

That led to a disappointing financial performance in the fourth quarter of last year when the company underestimated how big the effect of those delays would be on consumer demand. But Redbox's business stabilized in the first quarter of 2011.

The company also announced a $250-million stock buyback and a new $450-million credit facility to pay down debt and for working capital.

Coinstar stock closed down less than 1% at $58.63 on Wednesday before Lowe's resignation and the preliminary financial results were announced.

The news came on the same day that Dish Network revealed it would keep more than 1,500 Blockbuster stores open out of the approximately 1,700 it took over, more than many had anticipated. It also comes a week after Netflix unexpectedly hiked its prices, leading to a consumer outcry.

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--Ben Fritz

Photo: A customer uses a Redbox kiosk. Credit: Elaine Thompson / Associated Press

Redbox presses play on video games rentals across its kiosks

Redbox Games - Family Redbox made good on its promise back in April to roll out video game rentals across its network of kiosks, announcing that 21,000 of its 27,000 kiosks nationwide will offer a mix of games and movies starting Friday.

The company, which has rented more than 1 billion movies since introducing its service in 2003, had been testing game rentals for two years at 5,000 of its kiosks. It found that the average revenue of kiosks that rented games as well as movies was 10% to 15% higher than machines that rented only movies.

That's partly because games cost $2 a day to rent, while Blu-ray movies cost $1.50 and regular DVDs are $1. Adding games to the mix also helps Redbox spread its bets. In the fourth quarter last year, the company's operating margins slipped to 14% from 17.6% primarily because of weakness in movie rentals.

Redbox, based in Oakbrook Terrace, Ill., said each kiosk will have 22 to 28 game titles, as well as up to 200 movie titles.

The service, which started in 2003 as vending machines for groceries as well as movies, became the fifth largest DVD rental company by revenue in 2007.

-- Alex Pham

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Photo: A typical Redbox kiosk, now featuring games. Credit: Redbox.

 

 

 

Blockbuster switches to Redbox-style single day rental pricing

The days of the multi-day movie rental are officially over.

Blockbuster Inc. announced Friday that it is switching to single-day pricing in a bid to better challenge its fast-growing competitor Redbox. It's the first significant change at the struggling rental and retail chain since it was acquired by Dish Network in April for $320 million and a longtime executive of the satellite broadcaster was put in charge.

New releases will cost $2.99 the first day, while older films are $1.99 the first day. All movies will cost 99 cents for additional days. That's more than the 99 cents per day that Redbox charges for rentals every day, including the first.

Previously, Blockbuster charged $4.99 for a three-day rental.

By charging more for the first day, Blockbuster will be able to maintain what has been its one significant advantage over Redbox and its other, larger rival, Netflix: New releases from major studios available to rent the same day they go on sale. 20th Century Fox, Universal Pictures and Warner Bros. all restrict Redbox from renting their DVDs until 28 days after they go on sale because they believe 99 cents is too low a price for a first-night rental.

Those three studios, along with Sony Pictures and Walt Disney Studios, also place similar restrictions on subscription rental service Netflix.

Despite expectations that Dish would move to close many of Blockbuster's retail locations, only a handful of the 1,700-plus it took control of in the sale have shut down. A spokesman for Dish said the company is still considering how many to keep open and that the decision rests in part on negotiations occurring with studios over the terms under which it obtains DVDs.

Dish has yet to details plans for a Blockbuster-branded digital offering to compete with Netflix's online streaming service that people close to the company said was part of the rationale for the purchase last month.

-- Ben Fritz

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Redbox expands to video games as DVD business stabilizes [Updated]

Redbox is expanding into video game rentals as its parent company reported improved financial performance for the first quarter.

The kiosk DVD rental company said that after testing video game rentals for nearly two years, it will on June 17 begin offering titles such as Call of Duty and Super Mario Galaxy in more than 21,000 of its 31,800 locations around the country.

Games will cost $2 per night, compared with $1 for DVDs and $1.50 for Blu-ray discs.

On a conference call Thursday with analysts, Paul Davis, chief executive of Redbox parent company Coinstar Inc., said tests have indicated that the company can increase revenue by making 10% to 15% of the titles in its kiosks video games. It also allows the company to reach a different demographic than parents in grocery stores or drug stores picking up movies to take home.

"We think now that with $3, $1 for a movie and $2 for a game, you can appeal to the whole family," he said.

The news comes as Redbox is recovering from a weak fourth quarter during which it over estimated demand for DVDs. Much of the problem resulted from certain studios' decision to block Redbox from offering their DVDs until 28 days after they go on sale.

As a result, while business at kiosks continued to grow at a healthy clip, bottom-line results were more muted. Redbox revenue increased 38% from the first quarter of 2010 to $362.3 million. Even excluding new locations added in the last year, "same stores sales" jumped 15.3%.

However, Redbox's operating margin -- the amount of operating income it earned on each dollar in revenue -- dropped to 14% from 17.6%, as the holiday season inventory problems continued early in the first quarter. Total Redbox operating income was $23.7 million in the quarter, down 2% from the previous year.

Coinstar stock was up 8% in after-hours trading Thursday on the news, along with slightly improved guidance for the full year. Before financial results were released, Coinstar stock closed up 2% at $51.41.

-- Ben Fritz

[Updated on May 4 at 7:16 p.m.: An earlier version of this post incorrectly stated that 10-15% of the slots in Redbox kiosks would be taken up by video games. In fact, 10-15% of the titles in the kiosks will be video games.]

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Walt Disney Studios executive details counter offensive against DVD industry woes

Cheap DVD rentals, Internet movie piracy, and a sour economy: These are the causes of the storm ravaging Hollywood's home entertainment business.

Walt Disney Studios Distribution President Bob Chapek, addressing Wall Street analysts attending Disney's investor conference Thursday in Anaheim, cited all three factors as contributing to the industry-wide decline in DVD sales. And on top of that, he added, new technologies such as Blu-ray high-definition discs, aren't growing quickly enough to offset the declines.

Chapek said Disney is doing what it can to entice consumers to buy its movies, by offering new forms of packaging that offer greater perceived value, such as the "Beauty and the Beast Diamond Edition," which included Blu-ray and DVD discs.

Disney is also willing to experiment with "release windows," as it did in issuing Tim Burton's movie "Alice in Wonderland" on DVD three months after its theatrical premiere (instead of the usual four-month wait). 

Chapek said Disney would also seek higher margins from the rental business, increasing the wholesale price it charges for the DVDs sold to discount movie rental services Redbox and Netflix. He noted Disney will drop the wholesale price to $10 for each DVD six weeks after its goes on sale retail. 

The timing is slightly different from what we initially reported, which indicated Disney would make the movies available to Netflix and Redbox beginning 28 days after their initial DVD release. But Chapek's announcement confirms the main significance of Disney's shift in strategy with Netflix and Redbox: By charging the retailers more at the wholesale level, the movie studio hopes to mitigate the effect low-cost rentals will have on higher-margin DVD sales.

-- Dawn C. Chmielewski

 

Redbox digital service will go toe-to-toe with Netflix

Redbox is gearing up to challenge Netflix head-on, the kiosk DVD rental company confirmed Wednesday.

At a meeting with analysts, Redbox President Mitch Lowe said his company's forthcoming digital option will be subscription-based Internet streaming instead of a transactional service through which consumers pay separately for each movie. A single monthly fee would allow users to access movies on multiple devices and access discs through kiosks.

That means Redbox will be competing directly with Netflix, which has amassed more than 20 million subscribers to its DVD-by-mail and Internet streaming subscription plans.

Redbox has previously said it will launch a digital service with a partner but has not identified the partner. Several people familiar with the matter have confirmed that Amazon.com is in talks with studios to acquire content for a Netflix-like subscription movie streaming service set to launch soon, making it a likely candidate to be Redbox's partner.

Investors have been eager to see Redbox launch a digital service, because consumers are increasingly choosing to watch movies via the Web and not DVD. In Coinstar's last fiscal quarter, Redbox revenue came in below expectations because of the impact of three studios not offering new releases to the company until 28 days after they went on sale.

Redbox was also recently dinged when Walt Disney Studios decided to raise its wholesale prices for DVDs sold to the company.

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— Ben Fritz

Disney raises wholesale price on Redbox and Netflix

Amid calls from some on Wall Street to choke off the supply of newly released DVDs to discount movie rental services, Walt Disney Co. has quietly decided to hike its wholesale prices on new-release DVDs for Redbox and Netflix, according to people familiar with the matter.

The move marks a subtle shift in Disney's relationship with Netflix and Redbox, and one that stands in contrast with most of Hollywood's dealings with the two rental giants. Other studios have refused to supply DVDs to Netflix and Redbox until 28 days after they are released out of concern that low-cost rentals will undercut DVD sales. Disney, on the other hand, all along has been supplying Netflix and Redbox with DVDs at the same time they go on sale, albeit at a lower price.

Disney will now charge Redbox and Netflix the full wholesale rate -- as much as $17.99 -- for its DVDs, the people said. That's more than studios often charge their largest wholesale customers and less than big retailers like Wal-Mart charge consumers for the popular new releases.

The change started with "Secretariat," which was released on DVD on Jan. 25, even though the studio said nothing public about it at the time.

Disney believes that its family-friendly fare, particularly animated films, is the type that consumers want to own for repeated viewing and therefore is not likely to be hurt by rentals, according to a person with knowledge of the situation.

How the new policy with affect Disney remains to be seen. By increasing the prices Redbox and Netflix pay for new releases, Disney could either increase the revenue it generates from those companies or force them to buy fewer copies and reduce their supply. That in turn could push frustrated consumers who want to rent toward other options like cable and Internet video-on-demand.

Redbox President Mitch Lowe confirmed that his company had reached a new agreement with Disney but said it would continue to offer Disney DVDs the same day they go on sale for $1 per night. A Netflix spokesman declined to discuss the issue. However, "Secretariat" is currently available to the company's subscribers.

The wholesale price Disney charges Netflix and Redbox for DVDs would drop to $10.79 at 28 days after they go on sale, according to one person with knowledge of the matter. That's the same amount of time that Fox, Universal and Warner make Redbox and Netflix wait to offer their movies. Sony imposes the four-week delay on Netflix only for movies that gross more than $50 million at the domestic box office. Paramount offers its movies to Redbox and Netflix the same day they go on sale.

The studios that have imposed delays have contended that $1-per-night rentals from Redbox kiosks or Netflix subscriptions devalue their content and undermine more-profitable disc sales and video-on-demand rentals.

There has been pressure on Disney to follow their lead. Outspoken media analyst Richard Greenfield of BTIG recently recommended that the media giant do just that, saying it would be "an important step in diminishing the negative impact Redbox is having on the movie industry."

A Disney spokesman declined to comment. However, the company will probably discuss its home-entertainment strategy at an investor conference in Anaheim on Thursday, a person familiar with the matter said. 

-- Dawn C. Chmielewski and Ben Fritz

Redbox parent company's stock slumps again

The woes aren't over for DVD kiosk company Redbox and its corporate parent.

Redbox owner Coinstar Inc. saw its stock slump 9% in after-hours trading Thursday after reporting weaker than expected guidance for the current fiscal quarter.

Results for the previous quarter ended Dec. 31 were also weaker than originally predicted, as Coinstar warned its investors Jan. 14. Due to a slump in demand from a new 28-day delay on new releases from three studios, revenue for Redbox was weaker than the company first told investors it would be.

For the quarter, Coinstar reported $11.7 million of net income on revenue of $391 million, in line with the company's recently revised guidance.

In a statement, Chief Executive Paul Davis said, "We have taken definitive steps to correct the issues we encountered with our Redbox business in the fourth quarter and will be tracking [its] progress closely."

Although $1-per-night DVD rentals from Redbox kiosks didn't grow as fast as Coinstar and its investors had hoped, they were still up substantially. Redbox revenue grew 38% to $319.6 million in the quarter, compared with a year ago.

For the current quarter, Coinstar told investors it would generate between $400 million and $420 million of revenue and earnings of between 15 cents and 25 cents per share.

The company didn't provide any further information on its previously discussed plans to work with a partner to launch a digital distribution service.

Before financial results were released, Coinstar stock closed up 3% at $44.24 Thursday.

-- Ben Fritz

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Shares of Redbox parent Coinstar hammered on earnings warning

This post has been corrected. See the note at the bottom. Redbox

Video-rental chain Blockbuster Inc. has been running ads criticizing its competitors for making consumers wait 28 days to rent new movies.

In the case of Redbox, it turns out consumers may agree.

Shares in Coinstar Inc., the parent company of $1-per-night DVD rental kiosk company Redbox, plummeted 26% on Friday after it disclosed that results for the fourth quarter ended Dec. 31 would be lower than expected. The reason: The company recently signed deals with several studios agreeing not to rent new movies until they had been on sale for four weeks.

"This was Redbox's first holiday season with 28-day delayed titles, and we underestimated the impact that the delay would have on demand during the fourth quarter," Coinstar Chief Executive Paul Davis said in a statement.

He also said that demand for high-definition Blu-ray discs, which Redbox has been offering for $1.50-per-night, have been lower than expected.

Redbox agreed to 28-day delays with three of Hollywood's biggest studios: Warner Bros., 20th Century Fox and Universal Pictures, all of which hope the so-called "window" will push consumers to purchase movies or pay a premium to rent them earlier from Blockbuster or through online services. That meant Redbox users who wanted DVDs like "Inception," "Despicable Me," and "Knight & Day" would be forced to wait nearly a month in exchange for paying a lower rental fee.

Analysts are divided over whether Redbox's disappointing results represented a temporary bump in the road or longer-term structural issues.

"In our view, Thursday's preannouncement is more a reflection of overly aggressive guidance than underlying weakness," Wedbush Morgan analyst Michael Pachter wrote in a research note.

But Needham analyst Charlie Wolf said Redbox could also be a victim of consumers' rapid shift to the Internet for watching movies.

"Logistical snafus were part of the problem, but this raises the issue of whether there is a faster change in the marketplace than expected from physical rentals to digital distribution," he said.

Redbox competitor Netflix also agreed to 28-day new release delays with four studios, but consumers have always used it less for new releases than Redbox. In addition, Netflix already had a popular online streaming option. Redbox has announced it will partner with another company to offer movies via the Internet, but has yet to detail launch plans.

Coinstar will release its fourth quarter financial results on Feb. 3. Revenue is expected to be about $391 million, compared with a previous company estimate of between $415 million and $440 million.

Davis noted that despite the lower-than-expected growth, Redbox revenue would still be up 38% from the same period in 2009. Discounting the addition of new kiosks, he said sales were up 12.5%.

Coinstar stock was trading at $42.17 on Friday afternoon.

For the record, 7:20 p.m. Jan. 14: An earlier headline said, "Redbox shares hammered after signaling that results to be lower than expected." Redbox is not publicly traded; it was shares of its parent company, Coinstar Inc., that declined.

-- Ben Fritz

Photo: A customer uses a Redbox kiosk. Credit: Elaine Thompson / Associated Press

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