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Coinstar Revenue Up, Earnings Down

25 Apr, 2013 By: Chris Tribbey

Redbox parent Coinstar reported April 25 slightly higher revenue but a drastic drop in profit for the first quarter of 2013.

The company reported revenue of $574.7 million for the first quarter ended March 31, compared to $568.2 million during the same quarter in 2012, and a profit of $22.6 million, compared with $53.7 million during the comparable quarter.

Operating income for the quarter was $47.9 million, down from $78.3 million during the first quarter of 2012, with Redbox seeing lower revenue at kiosks and increased expenses, including more copy depth at kiosks to drive rentals, and higher payment card processing fees.

The drop in profit was partially attributed to Redbox’s initial investment in Redbox Instant by Verizon, the multiplatform rental service that launched mid-March. Redbox Instant — a joint venture between Redbox and Verizon — pairs unlimited streaming of content from Warner, Lionsgate, Paramount and others with four DVD rentals at Redbox kiosks for $8 a month. The service is currently supported on the Xbox 360, Apple devices and Samsung Blu-ray Disc players, with LG Electronics, Google TV and Vizio committed as well.

Also contributing to the drop in profit was a weaker slate of new-release titles compared with the previous year’s quarter, as well as higher DVD purchases from Warner Home Video, as part of an agreement signed in the fourth quarter of 2012.

“We continued to deliver long-term value for our stockholders through strong performance this quarter,” said Coinstar CEO J. Scott Di Valerio. “The continued growth in Redbox market share shows our ability to win with consumers, and the installation of 350 TD Canada Trust-branded coin-counting kiosks demonstrates our ability to expand our coin business in new channels. We are energized by our ability to develop exciting new concepts across our businesses that we believe will generate value for consumers, retailers and our stockholders.”

As of the end of the quarter there were 43,700 Redbox kiosks, and Redbox accounted for $507.9 million of Coinstar’s revenue for the quarter, compared with $502.9 million during the same quarter in 2012. Net revenue per disc rental remained flat at $2.56.

Redbox now enjoys a DVD rental market share of 47.8%, up more than 7% year to year.

During the quarter, Redbox experienced six of its 10 best rental days ever, including its first 4 million rental day. Total Redbox rentals for the quarter were 198.4 million, versus 197.1 million during the same quarter in 2012.

Also during the quarter, Redbox replaced 100 NCR kiosks with its own kiosks and removed 1,500 others without replacing them. Redbox bought out NCR’s Blockbuster Express kiosk division in early 2012.

Blu-ray Disc brought in a record 14.2% of Redbox revenue, representing 12% of total rentals, up 65% year-over-year. Top performing Blu-ray titles included Flight, Ted and Here Comes the Boom. Argo and Zero Dark Thirty also performed well on Blu-ray.

Video games represented 5.1% of revenue and 2.2% of rentals, with rental volume up 16% year over  year. The Walking Dead: A Telltale Game, Tomb Raider, Bioshock: Infinite and MLB 13: The Show were top game renters.

For the second quarter, Redbox is expecting big things, with titles set for release earning $2.1 billion at the box office, including six titles that took in more than $100 million. Life of Pi, Django Unchained, The Hobbit: An Unexpected Journey, Les Misérables and Silver Linings Playbook are the titles Redbox is looking at to carry the quarter.

Redbox expects Blu-ray to represent as much as 16% of revenue for the quarter, and for video games to pull in as much as 6% of revenue.

Overall, Coinstar is expected second quarter revenue of between $555 million and $580 million.

“Our first quarter performance underscores our commitment to maintaining a strong financial position, driving long-term, profitable growth, and returning capital to stockholders,” said Coinstar CFO Galen C. Smith. “Following a significant deployment of kiosks in 2012, we are now focused on kiosk optimization, continued operational excellence and disciplined investment in growth to increase the return on our assets.”

Earlier in the week, Redbox Instant CEO Shawn Strickland said the service may look into offering original programming to its consumers at some point, to keep pace with the likes of Netflix and Amazon.

As reported by Advertising Age during its annual digital conference in New York City April 17, Strickland said original programming is almost inevitable for the nascent streaming and rental service.

“I don’t see how you can avoid having original content,” Strickland said, according to Advertising Age.

Strickland said Redbox Instant would likely look toward family-oriented programming for its first foray into original programming, Ad Age reported. However, he stressed that any original programming for Redbox Instant is a long way off.

“There’s a long development process there,” Strickland said, according to a Variety report. “If I had ‘House of Cards,’ I don’t know that I would get too many additional subscribers. My focus today is creating a content offering and platform that pulls people in. Ultimately I think we’ll get there, but not in the near term.”

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