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Redbox Exiting Canadian Market

5 Feb, 2015 By: Erik Gruenwedel

Rental transactions dropped by 10.7 million units in the fourth quarter

Redbox is ceasing operations in Canada, according to parent Outerwall, which said the business north of the boarder is not meeting the company's “performance” expectations.

Redbox, which operated about 1,500 rental kiosks in Canada, recognized a $1.5 million after-tax charge in the fourth quarter (ended Dec. 31, 2014) related to the accelerated recognition of content library and capitalized install costs on property and equipment. The remaining value of the content library and other costs will be amortized over an expected three-month wind-down period. Following the final shutdown of the operations in Canada, the company expects to report Redbox Canada results as a discontinued operation.

The shutdown is the second for Redbox, which last year terminated Redbox Instant, a hybrid physical/streaming joint venture with Verizon. Last month, Outerwall fired CEO Scott Di Valerio.

The latest move underscores Outerwall’s renewed focus on Redbox’s bottom line, while continuing to make disciplined growth investments, including scaling ecoATM, according to CFO Galen Smith.

"We made the decision to shut down the business to avoid continued losses and focus on the U.S. [Redbox] business. The decision to shut down Canada reflects our commitment to deploy capital only to those activities that we believe will produce the highest return,” Smith said during the Outerwall’s Feb. 5 fiscal call.

Regardless, the Canadian departure surprised Wedbush Securities analyst Michael Pachter.

"They should be doing fine, since there is such population concentration in three [Canadian] cities, so I don’t get it," Pachter said in an email.

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