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Blockbuster U.K. Sale Could Give Lifeline to Kiosks

26 Mar, 2013 By: Erik Gruenwedel

The sale of bankrupt Blockbuster U.K. to a private equity group could pave the way for the deployment of thousands of Blockbuster-branded kiosks currently sitting idle in storage in the United States.

When Redbox acquired Blockbuster Express kiosks from NCR Corp. in February 2012 for $100 million, it assumed ownership of about 10,000 kiosks, including 6,200 units still in operation across the country. NCR owned and operated Blockbuster Express through a license agreement with Blockbuster Inc. before it was acquired by Dish Network.

NCR exited the kiosk disc rental business after posting a $60 million loss.

After acquiring its principal rival and converting the Express kiosks to Redbox (including 1,900 units this quarter), parent Coinstar indicated it would consider deploying Express kiosks abroad in an effort to expand operations globally.

B. Riley & Co. analyst Eric Wold contends the Blockbuster U.K. purchase by Gordon Bros. greenlights such a deployment as it underscores the strength of the brand and disc rentals.

Gordon Bros. said it believes there still exists a viable disc rental market in the U.K. despite burgeoning availability of subscription video-on-demand services such as Netflix and LoveFilm Instant. The latter also operates Europe’s largest by-mail disc rental service.

“This may represent an attractive vehicle for the thousands of Blockbuster kiosks,” Wold wrote in an e-mail.

At the time of the acquisition, Coinstar estimated assimilation of Express kiosks would result in an increase in capital expenditures from $40 million to $45 million.

On a recent conference call, Coinstar management said they were considering a variety of options to redeploy Express kiosks into international markets through either sale or joint venture programs (e.g., where Coinstar would contribute the kiosk for a revenue/profit share).

“With the kiosks already branded Blockbuster, I believe this would make for an easy fit for those kiosks that would not be competitive with Redbox’s operations,” Wold wrote. “Right now, those kiosks are basically sitting in a warehouse generating depreciation and zero revenues — so anything that could be done to either sell them or generate incremental recurring revenue would be upside to current expectations.”


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