Everything's Up for Redbox

1 May, 2014 By: Erik Gruenwedel, Chris Tribbey

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During the first quarter of 2014, Redbox saw its revenue, operating income and number of rentals rise year over year, parent company Outerwall reported May 1.

Redbox revenue increased $7.7 million, or 1.5%, to $515.7 million, up from $507.9 million in the first quarter of 2013, and operating income was $102.9 million, an increase of 11.7% from the $92.2 million reported a year ago. Redbox had approximately 200 million rentals during the quarter, up 1.2% from the 197.5 million it rented out in the same quarter of 2013.

Redbox same-kiosk sales were up 1% in the first quarter of 2014, compared with a decrease of 11.8% the previous year, thanks to a stronger release slate. Net revenue per rental was up slightly to $2.58. By the end of the first quarter, Redbox had approximately 44,100 kiosks in 36,400 locations, up from 43,700 kiosks in 36,100 locations.

“We are off to a solid start this year as demonstrated by our first-quarter 2014 results,” said Outerwall CEO J. Scott Di Valerio. "As the leader in automated retail, we are focused on bringing innovative products and services to consumers. We believe we are well-positioned to execute in 2014 as we continue to leverage our core capabilities and achieve greater operational efficiencies to drive shareholder value.”

Overall, Outerwall reported revenue of $600.4 million, up 4.7% from the $573.3 million it reported a year ago. Outerwall posted a profit of $23.2 million, up 2.5% from $22.6 million. Operating income for the quarter was $58.7 million, compared with $56.7 million in the first quarter of 2013.

“Our financial results in the first quarter of 2014 were stronger than expected," said Outerwall CFO Galen Smith. “Our focus on growing the business and managing expenses resulted in higher revenues, improved Redbox and Coinstar segment operating margins and strong free cash flow in the quarter.”

March was the strongest month of the quarter for Redbox, thanks to a strong slate of films, including The Hunger Games: Catching Fire, American Hustle and The Wolf of Wall Street. Dallas Buyers Club, Nebraska and Blue Jasmine also performed above the company’s expectations.

Blu-ray Disc rentals were 15.2% of all rentals, up from 12% in the first quarter of 2013, and accounted for 17.7% of Redbox revenue, up from 14.2%. Video games were 1.4% of all rentals, down from 2.2%, and accounted for 3.4% of revenue, down from 5.1%. Redbox attributed the decline to the industry’s transition to next-generation gaming consoles.

In Canada, Redbox installed approximately 200 kiosks, ending the quarter with more than 1,300.

For Redbox Instant by Verizon, which marked a year in the market in March, Redbox said it “continued to increase subscribers, aided by the strong level of connected device sales in Q4.”

“We made several product enhancements during the quarter that improve the consumer experience and resulted in monthly increases in engagement with the service,” the company said in its quarterly report, adding that it made a required capital contribution of $10.5 million to Redbox Instant by Verizon in the first quarter.

Nothing was said regarding the progress of Redbox Instant by Verizon during the call, though Eric Wold, analyst with B. Riley & Co. in Los Angeles, said the service “is progressing” and is becoming “a nice contributor to above the line revenues/margins outside of the joint-venture.”

“Unfortunately, with Redbox being the minority owner of that Redbox Instant joint venture — and it not yet being meaningful to Outerwall’s overall results per the [Securities and Exchange Commission], they have to wait until Verizon is ready to release numbers and discuss specifics,” he added.

Verizon CFO Fran Shammo, during Verizon’s April 24 financial call, had little to share about his company’s over-the-top ventures.

"We are in a great position to take advantage of the marketplace when and if content starts to sort itself out from an OTT perspective,” he said. “That's probably all we would probably  say at this point."

Michael Pachter, analyst with Wedbush Securities, said things may be going slow on the subscriber side for Redbox Instant, because it’s focused mostly on feature-length content.

“Amazon and Netflix are mostly chasing TV content, and Redbox Instant is all movies,” he said. “It’s too limited to appeal to people who have Prime or Netflix.”

For the second quarter, 22 of the 31 theatrical titles slated for disc release saw a box office take of less than $40 million, and in June, Redbox won’t see any new releases during the first week.

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