Analyst: 28-Day Window Ongoing Concern to Coinstar Investors23 Jun, 2010 By: Erik Gruenwedel
The 28-day delay of new release DVD/Blu-ray Disc movie rentals to Redbox from three major studios continues to negatively impact investor confidence in parent Coinstar shares, an analyst said.
Eric Wold, with Merriman Curhan Ford in New York, said the ongoing embargo of new release movies from Warner Home Video, 20th Century Fox Home Entertainment and Universal Studios Home Entertainment has contributed to 20% of Coinstar shares available for trade (“float”) being sold “short,” with investors believing the stock value will decline.
Since acquiring all of Redbox in 2009, the kiosk vendor now represents 75% of Coinstar’s estimated fiscal year 2010 revenue of $1.6 billion. Redbox has new release agreements with Sony Pictures Home Entertainment, Lionsgate, Summit Home Entertainment, among others, and recently expanded its deal with Paramount Home Entertainment. Redbox signed separate deals with Warner, Universal and Fox in order to forgo costly workaround procurement of new release studio titles from third-party retailers.
Wold said internal data suggested Redbox consumers are willing to wait 28 days for major studio releases, with select rental turns spiking after titles are made available. He said the data indicated consumers are flexible with their rental options during the 28-day period (visiting brick & mortar locations), with a substantial percentage of consumers willing to wait for the lower cost of kiosk vending.
“Even though the estimated impact of these windows was included within [Coinstar] management’s guidance, we believe the unknown factor remains a concern to some investors,” Wold wrote in a note, adding that fiscal estimates were given before Movie Gallery and Hollywood Video announced plans to liquidate operations.
Indeed, Coinstar shares are down 19% over the past three weeks despite Disney releasing No. 1 box office hit Alice in Wonderland to kiosks on street date, and Paramount agreeing to continue supplying content on street date through 2014 – in exchange for a guaranteed $575 million.
Coinstar shares were down 25 cents to $46.75 per share in mid-morning trading.