Redbox President: We Are ‘A Respected Part of the Industry’

27 Feb, 2013 By: Chris Tribbey

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At the 2013 International Consumer Electronics Show in Las Vegas, Redbox president Anne Saunders met with several heads of studio home entertainment divisions, and couldn’t help but smile over what one of them said to her.

“I’ll let the person go unnamed, but one of the folks there said, ‘You know, three years ago I wouldn’t even tell anyone I was taking this meeting with you,’” she said Feb. 27, speaking during Redbox parent company Coinstar’s annual analyst day. “’But now you guys are a respected part of the industry.’”

After fighting in court over street delays with 20th Century Fox Home Entertainment, Universal Studios Home Entertainment and Warner Home Video, Redbox now has agreements with all three studios, along with Sony Pictures Home Entertainment, Lionsgate and Paramount Home Media Distribution.

“We’ve moved into a position where with many of these studios we’re their No. 4 or No. 3 largest customer in home video,” Saunders said. “We have signed deals with studios where previously they didn’t believe it was in their best interest for them to do business with us. By and large, our relationships with the studios are positive and productive.”

Redbox is coming off an impressive year, leading parent company Coinstar to $2.2 billion in revenue. By 2017, Coinstar wants to double its revenue to $4 billion, with Redbox accounting for more than half of that. For 2013 Coinstar is looking at revenue of between $2.37 billion to $2.55 billion.

Redbox has a larger nationwide footprint than McDonald’s and Starbucks combined, with nearly 70% of Americans within five minutes of a Redbox kiosk, the company reports. Redbox garners more customer loyalty than Netflix (76%), eBay (73%) or Apple (62%), according to a BrandIndex report.

As of February Redbox has passed the 2.5 billion disc-rental mark, with 42 million unique customers averaging six rentals per customer in 2012.

Redbox is trying new things with its studio partners, including sellthrough coupons, more Blu-ray Discs and the first 3D Blu-ray rental title at kiosks.

“From our perspective, we’ve always felt that rental improved sellthrough, though the studios had a different point of view,” Saunders said. “What we see now though, quantitatively … by and large, people want to try it before they buy it.”

Consumers who rented Hotel Transylvania from Sony Pictures Home Entertainment were offered a $5 coupon off a purchase of disc versions of the Jan. 29 release. Redbox is looking to do the same with more studio partners. For the Jan. 8 release of Dredd from Lionsgate, Redbox offered its first-ever 3D Blu-ray rental.

“We got a slight lift in overall rentals for [Dredd],” Saunders said. “But the interesting thing was the people who rented Dredd in 3D, 68% said the reason they rented it was because it was 3D.”

Redbox is also seeing good penetration of Blu-ray and game rentals in certain markets, and is pushing to add more of those discs in kiosks, Saunders said.

The company’s digital service, Redbox Instant by Verizon, currently in beta testing, “is on the verge” of launching, according to Redbox Instant president Scott Strickland. The service combines four disc rentals at kiosks with unlimited streaming access to an estimated 4,500 titles from several studios for $8 a month.

“DVD is at the core of that relationship,” he said, noting that half of the discs rented as part of the trial are being reserved ahead of time. Samsung devices and the Xbox 360 currently carry the Redbox Instant streaming application.

Eric Wold, analyst with B. Riley Caris in Los Angeles, said that while it may take a while before Redbox Instant is profitable, it’s “not the capital/profit suck some feared.”

“While new details were scarce, management stated that only $25 million more would be invested in 2013 (after $25 million in 2012) and that given the variable content acquisition model, the joint venture should be self-sustaining and, we believe, is unlikely to need any more outside capital beyond 2013,” Wold wrote in a note to investors. “We continue to project the joint venture reaching profitability by 2014.” 

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