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Sochi Olympics Not Expected to Impact Redbox

19 Feb, 2014 By: Erik Gruenwedel, Chris Tribbey

Quadrennial sporting event traditionally impacts movie rental habits

Redbox should make the medals podium as the Sochi Winter Olympics heads to its Feb. 23 conclusion.

With the quadrennial event topping nightly TV ratings, conventional wisdom suggests the number of people renting movies from Redbox (or a video store) would be down, thereby adversely impacting first-quarter (ending March 31) revenue.

Michael Pachter, analyst with Wedbush Securities in Los Angeles, said it remained possible that the popularity of the Winter Olympics could cut into rental demand during the middle part of the current quarter as households watch events on demand and live TV.

Pachter said the Olympics' impact on movie rentals poses a bigger threat to brick-and-mortar rental and kiosks than streaming, since the former require consumers to drive in their car.

Redbox parent Outerwall Inc. has forecast a revenue gain, suggesting it does not believe the Sochi Games will undermine its renters.

“Management’s guidance for Q1 revenue is modestly above last year’s level, implying that the impact will not be severe,” Pachter wrote in a Feb. 19 note.

Yet, the Olympics have historically impacted the rental industry, including Netflix and Redbox. During the 2012 London Summer Olympics, new-release slates and rental demand shifted from the third quarter to the fourth quarter in preparation for the event.

Eric Wold, analyst with B. Riley & Co. in Los Angeles, said that during the 2008 Games in Beijing, Redbox saw a 22% drop in revenue compared with the prior-year second and subsequent fourth quarters. Wold said the impact of the London Games distracted renters and delayed title releases.

“Not only did that crowd out some later demand that normally occurs with new title releases in Q4, but the significant gap in Q3 releases negatively impacted kiosk traffic by disrupting behavior — something that took until Q1 of [2013] to get back on track,” Wold said.

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