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Coinstar SVP: Warner Has ‘Different View of the World’

23 May, 2012 By: Chris Tribbey

Getting new-release DVDs to the consumer as quickly as possible is Redbox’s No. 1 priority, according to Galen Smith, SVP of finance for parent company Coinstar.

That’s why Redbox won’t budge on the Warner Bros.’ demand that new-release titles be delayed at rental 56 days after street date, he said.

“Studio relationships are very important to us, but we’re always balancing that with what’s best for our business, and ultimately what’s best for the consumer,” Smith said, speaking at the Morgan Stanley Retail Conference in Boston on May 23. “With Warner, there’s simply a different view of the world, where they want to have this on a longer delay than we think is right for either our business or our consumers.”

Since its DVD and Blu-ray Disc agreement with Warner ended Jan. 31 — an agreement that had new-release titles on a 28-day delay — Redbox has been paying retail prices to stock Warner Home Video new releases and stocking them in kiosks within seven days of street date. Redbox still has new-release titles from 20th Century Fox Home Entertainment and Universal Studios Home Entertainment on a 28-day delay, and day-and-date contracts with Lionsgate/Summit Entertainment, Sony Pictures Home Entertainment and Paramount Home Media Distribution.

The quicker turnaround on Warner titles in kiosks is resulting in higher margins per disc, due to incremental turns on rentals, Smith said, but he admitted that Redbox is leaving “some revenue on the table” because Redbox isn’t always able to secure all the copies it wants.

“But it’s also going to be more profitable because you’re not over-buying a particular title,” he said.

Coinstar CFO Scott Di Valerio said May 9 that the company is open to going back to the negotiating table with the studio. Smith said Redbox would spend anywhere between $800 million and $1 billion in 2012 on studio content, and wanted to stress that Redbox “can be an important source of value to the studios.”

Warner contract or not, Redbox is in great shape, Smith said, evidenced by a 40% jump in first-quarter revenue and a 38.5% market share of the physical disc rental market.

“Our store is 12 square feet,” Smith said. “We represent, today, 2% of the square footage that’s there for physical rental, and yet we had 34% of the [physical disc] units rented last year. It’s a nontraditional approach. We think that for the foreseeable future, we’ll be able to drive consumer behavior to rent from us, and grow that share. We think physical has a much longer life than the rest of the world thinks.”

In regard to Blu-ray, Smith said Redbox “got a little bit ahead of ourselves” and demand in terms of how many discs it was stocking in kiosks.

“We then pulled back and found more of a balance,” he said.

Smith also touched on the joint streaming and DVD rental venture with Verizon, which is set to launch by August. The joint venture gets Redbox into the streaming business and will allow Verizon to provide its digital content distribution platform, Verizon Digital Media Services, beyond its fiber-optic FiOS TV subscriber base of 4 million.

“What I appreciate with the Verizon team is they had a real vision on what our physical footprint and product can provide,” Smith said. “The ability to provide new releases to consumers in a value-centric and convenient way was something that they really latched on to. [The partnership] will combine physical new releases at the kiosk with additional [subscription] VOD content.”

Earlier in the day, Fran Shammo, EVP and CFO for Verizon, said the joint venture will help with content negotiations for FiOS, and will help improve margins in terms of how much Verizon pays for content per subscriber.

“As we negotiate our new content deals, we’re also bringing in the Redbox joint venture into that discussion, so as we build on our subscribers to the Redbox joint venture, that will lower our content costs,” he said.

Shammo noted that FiOS is available in 13 states, and the Redbox partnership will help Verizon expand its service.

“It benefits us,” he said. “It was an offensive play, but it was also a defensive play against other providers.”

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