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Analyst Projects Average Revenue Decline at Redbox Kiosks

17 Jul, 2013 By: Erik Gruenwedel, Chris Tribbey

An estimated 8.5% drop in average revenue per kiosk is tempered by the addition of 900 kiosks, improved operating efficiencies and a back-loaded release slate in the second half of the year

Expect Redbox to weather a tepid second-quarter (ended June 30) release slate with a modest overall 7.3% revenue gain and improved internal operating efficiencies, according to B. Riley & Co. analyst Eric Wold.

Redbox parent Outerwall Inc. reports fiscal results July 25.

While Redbox is projected to increase revenue $491.6 million in the quarter, the average revenue per kiosk is anticipated to decline 8.5%. The No. 1 kiosk vendor will make up the shortfall with the net addition of 900 kiosks — a third of which include the final replacement of 300 Blockbuster Express kiosks with Redbox units.

Outerwall (formerly Coinstar) bought out Blockbuster Express from NCR Corp., which operated about 10,000 kiosks under a license agreement with Blockbuster.

“We believe Q2 results are less important than management [indicates], at least in maintaining [second-half 2013] guidance,” Wold wrote in a July 17 note.

The analyst said investor concerns about undue emphasis being placed on the second half (i.e. Q4) release slate, fails to appreciate the fact that 30% to 40% of operating Redbox kiosks increased disc capacity (VMZ) by 80 slots at the end of the quarter.

VMZ is an acronym for “vertical merchandizing zones,” which involves adding extra disc slots in kiosks. CRM (customer relationship management) software is intended to improve analysis of customer renting patterns (when they rent, how they rent, how much, what genres, etc.), thereby enabling Redbox with improved targeting of marketing and promotional messages.

Meanwhile, Wold believes Redbox, in the upcoming fiscal call, will highlight the Q4 release slate, which will include most of the summer theatrical movies.

“This would better reflect the strong disc-release slate (benefiting from the summer blockbusters) as well as provide more time for the VMZ and CRM initiatives to take hold with consumers,” Wold wrote.



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