By : Erik Gruenwedel | Posted: 09 Nov 2009
egruenwedel@questex.com

Despite posting an impressive third-quarter profit and signing a distribution deal with Twilight studio Summit Entertainment, rental kiosk operator Redbox is entering unsettled waters, according to Merriman Curhan Ford analyst Eric Wold.

The analyst said Redbox parent Coinstar Inc. generated revenue nearly 4% below his $307 million projection due in large part to $8.9 million “miss” in projected Redbox revenue.

Wold said Coinstar, which is increasingly dependent on Redbox due to weakness in coin-vending and other businesses, did not yet realize the full impact of imposed distribution delays imposed by Warner Home Video and 20th Century Fox Home Entertainment.

He said proposed workaround programs by Redbox to secure vital Warner and Fox titles (in addition to new releases from Universal Studios Home Entertainment) require additional labor and product costs to physically obtain content from third-party retailers.

Still, the analyst, who said a maturing kiosk base and improved margins should help offset workaround costs, remained confident in the growth outlook for Redbox.

“If Redbox can enter into a DVD supply deal with a major retailer, that could provide margin upside,” Wold wrote in a note.

---