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Redbox Eying Movie Ticket Sales?

17 May, 2012 By: Erik Gruenwedel

Kiosk vendor adding 2,400 combined locations at CVS, Dollar General, Family Dollar convenience stores in 2012, including 35% locations with dual kiosks

Redbox could include movie tickets as it ups entertainment offerings (including expanded Blu-ray Disc title selections) at its national footprint of more than 38,000 rental kiosks, according to Wedbush Securities analyst Michael Pachter.

Pachter concluded as much following Redbox parent Coinstar’s May 16 analyst day where Gregg Kaplan, president and COO of Redbox, outlined four growth areas he believes the kiosk business is dependent upon: new business (movie tickets), digital strategy with Verizon, assimilation of Blockbuster Express locations and expansion into Canada.

Though much of the presentation was disclosed May 9 by Coinstar CFO Scott Di Valerio at a separate investor event, it underscored the fact that Redbox believes the kiosk rental business has significant growth opportunities ahead.

“We believe that Coinstar intends to sell movie tickets through Redbox kiosks, helping its studio partners to drive higher-margin theatrical exhibition sales, while driving awareness of films that will ultimately come to [disc],” Pachter wrote in a May 17 note.

While the analyst day presentation provided scant new specifics regarding the February-announced digital joint venture with Verizon, Redbox disclosed it would get 35% of the net profit in the partnership, including being paid a fee for each disc rental generated by the subscription program.

An exact launch date of the subscription program, including pricing and content selection, was not revealed, although Coinstar expects the joint venture to be unprofitable in the near term as it ramps up operations.

“We are encouraged that Coinstar limited its exposure by requiring the [joint venture] to pay it for [discs] rented, suggesting that the company will not lose money over the long run,” Pachter wrote.

Redbox believes there are up to 2,500 potential kiosk locations in Canada, including Walmart Canada and Couche-Tard convenience stores. It says Canada represents the third-largest disc rental market in the world, with $23.09 in annual movie rental spending per capita, compared with $19.82 per capita movie rental spending in the United States.

At a separate investor event, Verizon CFO Fran Shammo said the appeal of Redbox to the digital joint venture was its expansive customer base and robust website — the latter attracting 11.3 million unique visitors monthly.

“It is really meant for launch across the U.S. for the Redbox population and its 30 million customers,” Shammo told investors at the 40th annual J.P. Morgan Global Technology, Media and Telecom confab in Boston. “We are going to integrate all that together and bring packages for both streaming and DVD.”

Indeed, Redbox had 38.6 million customers in the first quarter (ended March 31), up 5.8 million users (17.6%) from 32.8 million users during the same period in 2011. Redbox said it saw a 5% increase in first-quarter Friday night rentals following promotional enhancements to the website and targeted emails to its 22 million registered users. Redbox claims to have 39 million customer email addresses.

With closure of Redbox’s $100 million acquisition of Blockbuster Express business from NCR Corp. occurring next month, Pachter expects the kiosk vendor to install 5,000 Redbox units in the previous 10,000 Express locations. Notable Express locations include Safeway, Food Lion and Publix. Meanwhile, Redbox and Express kiosks apparently are incompatible — a reality Di Valerio hinted at when he said many of the Express kiosks might be repurposed for expansion opportunities in Europe.

Redbox suggested assimilation of the Express business would initially be dilutive — representing a possible negative hit to forward guidance, according to B. Riley & Co. analyst Eric Wold.

“We are still positive on the acquisition and believe it will generate a boost to profitability in 2013, brings key retail partners into the fold and provides kiosks that can be used to seed international markets,” Wold wrote in a May 17 note.


About the Author: Erik Gruenwedel

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