Coinstar CEO Warns Against Delay Longer Than 28 Days

3 Feb, 2011 By: Chris Tribbey

Paul Davis, CEO of Redbox parent Coinstar, professed Feb. 3 that studios seem pleased with the current 28-day window arrangement for new-release titles but warned that if they pushed for a longer delay, Redbox would have to push back.

“If it ever got to the point where it was too over the line, we could leverage the First-sale doctrine,” he said during a financial call, referring to the Supreme Court ruling that prohibits copyright owners from preventing a lawfully made copy of their licensed work to be resold.

Before Coinstar reported its fourth-quarter and full-year-2010 financial results Feb. 3, Time Warner CEO Jeff Bewkes said during his company’s earnings report that the 28-day window for new Warner Home Video release titles for Redbox and Netflix isn’t enough.

“The current pricing and window are not really commensurate with the value that those kinds of availability are extracting,” Bewkes said. “We think that the value our [studios] should get for that period of exhibition is considerably higher than what's there now.”

Universal Studios Home Entertainment, Warner Home Video and 20th Century Fox Home Entertainment all have agreements with Redbox that keep new release titles out of the kiosks for 28 days after their initial release. Universal had sought a 45-day window, Fox a 30-day window, and all three studios had told wholesalers VPD and Ingram to stop selling to Redbox, unless the kiosk operator agreed to a delay.

Redbox agreed to a 28-day window with Universal and Fox in April 2010 and with Warner in February 2010.

It was the underperformance of those 28-day delayed titles that resulted in lower-than-expected fourth quarter 2010 results, Coinstar reported Feb. 3. The company reported fourth-quarter revenue of nearly $391 million and profit of $11.7 million, up from $3.4 million in the fourth quarter of 2009. Coinstar said that as of the end of the year, Redbox’s market rental share had hit nearly 30%.

DVD revenue for the quarter increased 38% year over year to $319.6 million. By the end of the year, there were more than 30,000 Redbox kiosks installed nationwide.

For all of 2010, Coinstar revenue hit $1.43 billion, an increase of 39% from 2009. Full-year profit was $51 million, down from $53.6 million in 2009.

“We grew our fourth quarter revenue 31% over the prior year, and while this was not in line with our expectations, we still delivered $2.03 in earnings per share for the full year," Davis said. "We have taken definitive steps to correct the issues we encountered with our Redbox business in the fourth quarter and will be tracking progress closely. We remain optimistic about our core businesses as well as future opportunities with new automated retail concepts, and we are committed to driving continued profitable growth.”

Blu-ray also did not perform as well as expected during the fourth quarter. However, Davis said the company remains “bullish” on high-def rentals.

During the fourth quarter, Redbox rented its 1 millionth game and logged more than 8 million unique visitors at its kiosks each month during the quarter.

“We’ll make a decision about rolling out nationwide in the coming quarters,” Davis said about video game rentals.

Davis said the company had no specific updates regarding a digital strategy for Redbox, but reiterated that it remains a “top priority” for the company, and a 2011 rollout of digital options at kiosks is expected.

“Overall, this was a tremendous year for Coinstar exhibited by our revenue, adjusted [Earnings Before Interest, Taxes, Depreciation and Amortization] and [Earnings Per Share] growth,” said J. Scott Di Valerio, CFO for Coinstar. “Nonetheless, we did not finish the year as strongly as we expected. We do expect continued growth as we focus on providing a compelling offering to our consumers that is a significant benefit to our retail partners and increases our shareholder value.”

Coinstar announced it has authorized the repurchase of $50 million in common stock.

For 2011, Coinstar is expecting revenue of $1.7 billion to $1.85 billion, and earnings per share of $2.60 to $3.10. For the first quarter, the company expects revenue of $400 million to $420 million, and earnings per share of 15 cents to 25 cents.

DVD revenue for 2011 is expected to hit between $1.42 billion and $1.55 billion. Coinstar expects to add between 5,000 and 6,000 Redbox kiosks this year.

Shares of Coinstar were down more than $4, or about 9%, to $40.19 in after-hours trading Feb. 3.