Redbox Doubling Up on Kiosk Locations7 Sep, 2010 By: Erik Gruenwedel
Seeking to double the market penetration of DVD rental kiosks to 60,000 units, Redbox has quietly been adding a second unit at current kiosk locations.
The Coinstar Inc. subsidiary not only is attempting to further distance itself from competitor Blockbuster Express, but installation of a second kiosk at many Redbox locations counters marketing efforts by traditional video stores that underscore time-consuming standing-in-line to rent DVD/Blu-ray Disc movies at a kiosk.
Indeed, Ted Engen, president of the Video Buyers Group, a trade group with more than 1,500 retail members, said some independent stores in the Midwest employ marketing material depicting consumers standing in the snow to rent from a kiosk as a way to underscore the convenience of in-store movie renting.
Nonetheless, Eric Wold, analyst with Merriman Curhan Ford in New York, said Redbox's new strategy is bullish on kiosk vending.
“Not only did management reiterate to us their belief that the U.S. DVD kiosk market can support at least 60,000 locations, but they have found that adding a second kiosk to a proven location provided a much higher initial return and quicker payback than installing a kiosk at an unproven location,” Wold wrote in a note.
Wold added that installation of second Redbox kiosks in select locations did not signify to Coinstar a dearth of available retail locations. The analyst said it appears Redbox has solved inventory issues regarding 28-day delays of new releases from three studios, which he said should improve results from the disappointing second quarter.
“Management still expects to have Blu-ray discs in a majority of kiosks by the end of [the third quarter], which should help to boost average revenues per rental as well as margin dollars,” Wold wrote.
The analyst downplayed Redbox’s urgency to have a digital strategy similar to Netflix streaming due to what he believes is an ongoing shift more than $4 billion in brick-and-mortar rental revenue toward kiosk vending.
That said, Wold believes Redbox's 25,000 kiosk locations and 19,000 email addresses would be a valuable asset to partner with Sonic Solutions, Apple or another media company, for an eventual streaming option.
“Even though we do not believe Redbox necessarily needs to have a digital strategy to continue to take market share in the home video segment, we believe having a strategy is important to diversify growth as well as attain a more appropriate valuation multiple,” he wrote.