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Olympics Aftermath Portends Q4 Disc Rental Surge

27 Aug, 2012 By: Erik Gruenwedel, Chris Tribbey

Analyst says Redbox-Verizon joint venture set to launch in 30 to 45 days

The London Summer Olympics may be history, but the perennial sporting event’s record television and online viewers suggest a significant increase in movie disc rentals in the fourth quarter — notably by Redbox, an analyst said.

With NBC Universal devoting more than 5,000 hours of coverage to the 30th Games (and another 3,500 hours online), the consensus among studios, media companies, Netflix, Blockbuster and analysts was that the entertainment business took a significant hit July 27 to Aug. 12 as consumers got caught up in the exploits of Team USA and stayed away from movie theaters, kiosks and streaming.

With the theatrical box office taking an estimated $159 million drop in ticket sales during the Games, movies launched during the period are projected to contribute significantly to about 8.3 million movie discs rented in the fourth quarter, according to Eric Wold, analyst with B. Riley & Co. in Los Angeles. Wold said the influx of disc rentals could generate Redbox $20 million of incremental revenue for the period.

Redbox accounts for more than 40% of the physical rental revenue, according to parent Coinstar’s most recent fiscal report. Indeed, kiosks, spearheaded by Redbox, grew revenue to $990 million during the first six months of year, up nearly 23% from $805 million during the same period last year, according to DEG: The Digital Entertainment Group.

The analyst said that while the figure pales in comparison to the Q4 Redbox revenue projection of $543 million, the surplus likely would assuage typically skittish Coinstar investors.

“We note that Coinstar shares dropped by [more than] 20% in the days following the company reporting second-quarter revenues that were $13 million below the consensus estimate,” Wold wrote in an Aug. 27 note.

The analyst in July wrote that Redbox experienced a 22% drop in kiosk revenue during the 2008 Beijing Summer Olympics compared with the prior second and subsequent fourth quarters.

“Therefore, we view this potential [Q4] boost as a solid safety cushion in a period of uncertainty,” he said.

In addition, the analyst said Redbox is expected to announce its digital joint venture with Verizon in the next 30 to 45 days, including content selection, pricing tiers, etc. Wold said the announcement would coincide with the end of Netflix’s exclusive distribution deal with Epix — the multiplatform movie distribution platform co-owned by Lionsgate, MGM and Paramount.

“We continue to believe that consumers are clamoring for an effective combo subscription product … with pricing that could be 50% to 60% lower than the similar offering from Netflix, we could see a path to profitability that is quicker than most are currently expecting,” Wold wrote. “We view this announcement as [another] positive trigger for Coinstar shares.”


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