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Redbox Market Share Hits 45%; Kiosks to Hold More Discs

7 Feb, 2013 By: Chris Tribbey

Redbox ended 2012 with a 45.3% share of the physical disc rental market, up 7.5 points from the fourth quarter of 2011 and nearly double the market share of online and by-mail disc providers.

The milestone was one of several Redbox parent Coinstar announced Feb. 7, with the company reporting record Blu-ray Disc revenue, further Redbox expansion into Canada, and a firm deadline for the launch of Redbox Instant by Verizon, the combination SVOD/DVD subscription service that’s currently in consumer beta trials.

“What gives us a lot of optimism [is] there are a lot of things to point to that will unfold over the course of the year,” said Coinstar CEO Paul Davis, who’s retiring March 31. Current CFO J. Scott Di Valerio will take his place. “First is that Blu-ray as a percentage will continue to grow.”

Blu-ray accounted for 12.5% of Redbox revenue for the fourth quarter (ended Dec. 31) of 2012, nearly double the Blu-ray revenue from Q4 2011. For both Disney’s The Avengers and Sony’s The Amazing Spider-Man, more than 20% of kiosk rentals were Blu-ray, the company reported. Warner’s Dark Shadows and Disney’s Brave saw Blu-ray rentals at more than 18%.

“We are uniquely positioned to take advantage of the increased acceptance of Blu-ray given our value price point and marketing assets, which we plan to further leverage to help consumers discover and explore the format,” Davis said.

During 2012 Redbox installed approximately 350 kiosks in Canada, with agreements in place with Walmart, Safeway, Loblaw’s and Shoppers Drug Mart stores there. Coinstar expects to install an additional 1,500 to 2,000 Redbox kiosks up north in 2013.

“It’s the third-best rental market in the world, and it’s all about having presence and brand recognition, and we’re still in the early days there,” Davis said.

Redbox Instant will launch by the end of the first quarter, with “tens of thousands” of consumers involved in the beta test, Davis said. The service combines four DVD rentals at Redbox kiosks with unlimited streaming access to an estimated 4,500 titles from several studios for $8 a month, and also offers an EST option for approximately 2,500 titles.

“We are getting good feedback on the product, experience and offering and will continue to add devices, content and more site features and functionalities,” Davis said.

Coinstar made the announcements while reporting fourth-quarter and full-year 2012 results. The company posted a profit of $22.9 million for the fourth quarter of 2012 a drop of more than 27% from the same quarter in 2011 ($31.5 million).

The drop came despite an 8.4% jump in revenue year-over-year ($564 million vs. $520 million). Coinstar said the drop in profit was due to operating results from kiosks acquired as part of its $100 million acquisition of NCR Corp.’s entertainment division, which included 10,000 kiosks previously operating under the Blockbuster Express brand.

In the fourth quarter Coinstar replaced 500 NCR kiosks with Redbox kiosks, and removed an additional 800 NCR kiosks outright. Since the acquisition, Coinstar has replaced 2,700 NCR kiosks and removed 1,600 others. Coinstar expects to complete the replacement and removal of NCR kiosks by May.

Coinstar also announced that many Redbox kiosks will increase disc capacity by more than 80 discs in 2013. New kiosks in the second half of 2012 were manufactured with the increased capacity, and “a significant percentage” of existing kiosks will be upgraded in 2013.

Redbox revenue for the fourth quarter grew 9.6% to $488.3 million, and during the fourth quarter, Redbox same-kiosk rentals were up approximately 6% year-over-year. There were a total of 188 million rentals during the quarter, compared with 174.8 million rentals during the fourth quarter of 2011. Video games accounted for 3% of rentals and nearly 7% of revenue for the quarter.

“After facing unique and very challenging market conditions in Q3, Redbox improved performance on the DVD business compared with the prior year, posted impressive growth in Blu-ray, and improved profitability in video games,” Davis said.

Redbox had approximately 8,300 net new kiosks installed in 2012, bringing its total to approximately 42,400. For 2013, Coinstar expects to install as many as 1,000 new Redbox kiosks in the U.S.

For February, Redbox is looking at Taken 2 (Fox), Flight (Paramount) and Here Comes the Boom (Sony) to carry the company. In March, Twilight Breaking Dawn Part 2 (Lionsgate), Skyfall (Fox) and Zero Dark Thirty (Sony) are expected to be strong rental titles.

For 2013, Coinstar executives said they are confident they can grow total consumer disc rentals by 10%.

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