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Redbox Instant Halts New Account Registrations

19 Sep, 2014 By: Erik Gruenwedel

Troubled joint venture with Verizon cites criminal behavior, not fiscal drain for the decision

Redbox Instant, the Johnny-come-lately digital rental, transactional VOD joint venture with Verizon Communications, has temporarily stopped accepting new account registrations due to illegal third-party behavior, according to the service’s website.

“Our monitoring systems detected that criminals were misusing our new customer registration process to validate credit card numbers illegally obtained from some other sources,” Redbox said on its site.

The service maintained that existing consumer information — unlike recent consumer data breaches at Target and, most recently, Home Depot — is safe, and that those users could continue to rent, stream or buy movies and TV shows.

“We are taking this step to make sure that criminals are not misusing our system to hurt innocent third parties. We will continue to cooperate with law enforcement as needed,” Redbox said.

The setback is the latest challenge for Redbox Instant, which has struggled to attract subscribers since an oft-delayed March 13, 2013, launch.

Redbox continues to dominate the disc rental business through a network of 42,000 kiosks at more than 34,000 locations nationwide, but Redbox Instant is operating in the red — a reality that prompted corporate parent Outerwall to suggest it might seek an exit strategy for the digital service by the first quarter in 2015.

The company has never disclosed Redbox Instant’s subscriber data.

With some Wall Street analysts calling on Outerwall to shutter the service, longtime advocate Eric Wold with B. Riley & Co. admitted the writing is on the wall.

“At this point, it is unclear what the ultimate financial ramification could be if Outerwall exits the venture, but through Q2, the company had invested $63 million into the venture with another $10 to $11 million of capital contribution required during [the third quarter],” Wold wrote in a note.

Redbox is coming off a challenging quarter (ended June 30) in which the month of June represented the lowest monthly theatrical box office in Redbox’s history. Box office revenue in June was down 83% year-over-year as only four titles were released during the month.

Indeed, Redbox generated approximately 169.3 million rentals in the quarter, a decrease of 9.3% compared with the second quarter of 2013, on a considerably weaker release schedule than the year-ago period.

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