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Blockbuster Express: RIP

25 Jun, 2012 By: Erik Gruenwedel

Despite a strong brand name and state-of-the-art kiosk, Blockbuster Express couldn’t overcome significant head start by market leader Redbox

With the June 25 closing of Coinstar's $100 million acquisition of NCR Corp.'s entertainment division (d.b.a. Blockbuster Express), the curtain has closed on a kiosk vendor some thought could push market leader Redbox.

Express kiosks, which were owned and operated by NCR under a license agreement with Blockbuster Inc., had amassed a national retail footprint of 10,000 kiosks — about a quarter the size of Redbox.

The kiosks — adorned in Blockbuster blue and yellow — featured a 20-inch high-definition screen playing trailers and could be upgraded for digital distribution on micro drives.

But less than two years after CEO Bill Nuti declared the 2009 rollout of Express kiosks as a “headline event” for NCR, management enthusiasm for kiosk rentals waned as the losses mounted. The final blow apparently came a year ago when Nuti said the company was exploring a “gamut” of options, including sale of the Express division.

Express kiosks posted a $60 million operating loss in 2011 — a stark contrast to Redbox, which was generating exponentially higher market share and operating income. Redbox will substitute its kiosks for Express units in select locations while shuttering the rest.

“I think NCR just felt being an entertainment retailer was not their core business, and they preferred to sell the property to a true entertainment retailer: Redbox,” said Gil Luria, managing director of equity research with Wedbush Securities in Los Angeles.

Colleague Michael Pachter said many Express kiosks were situated in inferior locations compared to Redbox. For example, at a Ralphs supermarket in Rancho Santa Margarita, Calif., a busy Redbox kiosk is located inside the store by the checkout isles. By comparison, an idle Express kiosk sits off in the corner outside a neighboring CVS Pharmacy. 

"They never hit critical mass," Pachter said.

Regardless, Luria said the sale of Express units to Redbox allowed NCR to salvage its investment in physical entertainment distribution while at the same time enabling them to focus on providing services they do specialize in - such as manufacturing and servicing self-service equipment, including the equipment they sold to Redbox.

Indeed, NCR secured an additional five-year service contract with Coinstar as part of the sale, which includes a guaranteed payment of $25 million. 

Regardless, today's official conclusion of the transaction underscored the sizable gap between Redbox and Express and the reality both companies were going in opposite directions.

“It was too little, too late,” said an analyst who does not cover NCR/Coinstar but is familiar with the kiosk market.

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