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Rentrak Ups Q1 Home Entertainment Operating Income

14 Aug, 2013 By: Erik Gruenwedel

Rev-share distributor takes a page from Netflix playbook using namesake business to support expanding digital data businesses

Rentrak Corp. said its home video revenue-sharing business reported first-quarter (ended June 30) operating income of $2.2 million, compared with net income of $1.8 million during the prior-year period.

Home video revenue increased 23% to $13.1 million, from $10.6 million during the prior-year period. The operating margin for the division reached 28%, down from 30% during the same period last year.

Portland, Ore.-based Rentrak partners with studios distributing packaged-media titles to independent video stores on a revenue-sharing basis.

The decrease reflected a higher contribution from the rev-share business, which typically has lower margins, and the addition of an undisclosed “major rental chain” client.

Rentrak projects 5% to 8% revenue growth in home entertainment for fiscal 2014, with gross margins approximating 27%.

“Our home entertainment business has stabilized and returned to growth,” CFO David Chemerow said in the fiscal call.

CEO Bill Livek said the uptick in the home video business wasn’t due to any particular movie releases. He said that typically movies that underperform at the box office do rent well in home entertainment.

“We’re not going to sit here and say that physical DVDs will not decline,” Livek said. “But we are sitting here to say we’re going to continue to find where the business is, in a market that overall has a secular decline.”

The company over the past 10 years has sought to diversify by expanding into media and retail data collection. These units are collectively called Rentrak’s Advanced Media and Information business.

In the quarter Rentrak bowed “Digital Download Essentials,” which it claims is the first service in the U.S. to provide studios with purchase and rental data for digital movies from licensees such as iTunes, Amazon Instant Video, Google Play, Xbox Live, PlayStation, Walmart's Vudu.com service, and other over-the-top providers on an aggregate basis.

The AMI businesses generated revenue of $15.8 million, which was up 25% from revenue of $12.6 million last year.

From comments made by CEO Bill Livek in the fiscal call, Rentrak appears to be emulating a strategy whereby revenue from the mature home video business is poured into the developing digital businesses.

“Our home entertainment business is extremely valuable since it provides us with a large source of cash and operating income to be used for future growth in our [AMI] businesses,” Livek said.

For the quarter, Rentrak reported a net loss of $1.2 million due largely to $1.4 million in stock-based compensation costs and $84,000 in acquisition-related costs.

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