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Analyst: Redbox to Gain $100 Million From Gallery Closure

20 May, 2010 By: Erik Gruenwedel

Citing differing demographics among movie DVD rental customers at the national brick-and-mortar video chains, Redbox could see a 12-month revenue bump of more than $100 million from the closure of Movie Gallery and Hollywood Video stores, an analyst said.

Eric Wold with Merriman Curhan Ford in New York said that unlike Blockbuster customers that primarily (75%) seek other Blockbuster locations when a local store is closed, Gallery/Hollywood customers would likely gravitate toward Redbox or Netflix – the latter for the availability of older titles.

Wold said the departure of Gallery/Hollywood leaves $1.4 billion in incremental home entertainment revenue, including $750 million in DVD/Blu-ray Disc rental up for grabs, based on the company’s 2009 revenue.

The analyst then factored in the average Redbox rental transaction range from $1.75 to $2.25, compared with $4.25 for a comparable Gallery/Hollywood rental transaction (over a longer five-day period).

“Assuming that Redbox gains 20% to 30% of those [159 million rental] transactions … we estimate Redbox could see an incremental … $31 million to $59 million in gross profits over the forward 12-month period,” Wold wrote in a note.

He said the estimate includes Redbox’s four-week delayed access to new releases from Warner Home Video, Universal Studios Home Entertainment and 20th Century Fox Home Entertainment.

“Given our early read that DVD rentals remain strong after 28 days,” Wold wrote.

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