Mark Horak Out at Redbox

7 Dec, 2015 By: Erik Gruenwedel

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Erik Prusch, CEO of parent Outerwall, to assume oversight of kiosk vendor until replacement is found

Outerwall Dec. 7 quietly announced Mark Horak, president of Redbox, is stepping down — 21 months after joining the kiosk vendor following a long tenure with Warner Bros. Home Entertainment.

Outerwall CEO Erik Prusch will serve as interim president of Redbox until the position is filled. The company will initiate a search process to fill the role.

While no official reason was given for Horak’s departure, Prusch alluded to ongoing softness in kiosk disc rental as a concern.

"Consumers' rental patterns have not returned to the levels we had expected by this time,” Prusch said in a statement.

Horak was hired by former CEO J. Scott Di Valerio in March 2014. Di Valerio was let go in January.

Wedbush Securities media analyst Michael Pachter said Horak was hired during the 28-day embargo discussions with studios, which he said Horak help successfully navigate. Inventory management, however, was another issue.

"It appears he didn’t do a great job understanding their customer," Pachter said. "Horak allowed them to over-order inventory in the current quarter and demand dropped, costing them millions of dollars. That’s why he’s gone."

Prusch reiterated that Redbox, which just reported its weakest fiscal quarter of the year, remained a valuable entertainment option as the largest movie transaction service in America. The company, which has dealt with reduced (and delayed) new-release slates by studios, has been attempting to redouble efforts in video game rentals, in addition to the launch of a consumer loyalty program.

“We remain focused on driving increases in both unique customers and rentals and driving improved top-line performance while controlling costs and creating efficiencies,” Prusch said.

Redbox generated 23% fewer rental transactions at 132.6 million in the quarter ended Sept. 30, from 170.8 million transactions during the previous-year period. Revenue declined about 10% to $395.4 million, from $435.1 million a year ago.

While some consumers balked at the recent price hike that increased daily rentals to $1.50 for DVD, $2 for Blu-ray, and $3 for video games, those who did rent generated 16.5% higher gross margins for Redbox.

Pachter contends Amazon Instant Video and Apple iTunes have cannibalized a large portion of Redbox traffic from its convenience-oriented customers, who find competitive offerings more convenient. However, he expects the company's core-value conscious consumers to remain loyal so long as there is a significant price differential with most on-demand offerings.

"Only time will tell if this is likely, and we are lowering our estimates and price target to reflect the company's persistent recent revenue declines," Pachter wrote in a Dec. 8 note.

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