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Redbox Profit Grows as Coinstar Execs Eye More Studio Deals

4 Aug, 2009 By: Chris Tribbey

Redbox kiosks generated income of $58 million (on revenues of $344 million) in the first half of the year compared to $73 million in profit in all of 2008, according to financials from parent Coinstar. Redbox kiosks earned $4 million in 2006.

Coinstar chairman Paul Davis, in a conference call with investors Aug. 4, said Redbox is in discussions with several other studios, hoping to ink more deals similar to the one signed in late July with Sony Pictures Home Entertainment.

“We clearly understand the importance of fostering a collaborative relationship with the studios,” Davis said, adding that more video game and Blu-ray Disc rentals, and a broader selection of DVDs, were in Redbox’s immediate plans. “We wouldn’t do deals that we didn’t believe were margin/dollar positive at the end of the day. It’s hard to predict exactly where [negotiations] will go.”

Sony’s deal with Coinstar has Redbox buying $460 million in DVDs over five years, with nearly 20% of all Redbox DVDs coming from the studio. Sony will also receive 193,000 shares of restrictive stock in Coinstar. Redbox must either destroy or return Sony DVDs 26 weeks after street date, instead of selling them once their rental life is up.

Coinstar executives sounded upbeat about more studios signing similar deals. However, they would not comment on ongoing litigation with Universal Studios Home Entertainment over that studio’s proposed revenue-sharing terms. Coinstar has figured the cost of buying DVDs from sources other than Universal and its suppliers into its full-year financial guidance.

Coinstar projects Redbox kiosks will earn $750 million to $850 million in revenue for all of 2009. In 2008, Redbox had a 9% share of the DVD rental market. As of June 30, 2009, that share stands at nearly 14%, with nearly 30 million DVDs being rented per month, according to Coinstar.

Each Redbox rental is averaging just under $2 each in revenue for the company, Redbox confirmed, suggesting that Redbox consumers are returning DVDs quickly, instead of holding on to them until they own them. Those who don't return a Redbox rental after 25 nights end up owning the DVD, however Davis said sellthrough accounts for less than 1% of revenues for Redbox.

The total number of Redbox kiosks as of June 30 was 17,900, compared to 9,600 at the mid-point of 2008. Coinstar reported per-kiosk revenues are up 33% this year, and the installed base should hit between 21,200 and 22,200 Redbox kiosks by the end of the year, with a net addition of 7,500 to 8,500 kiosks for 2009, or “nearly one every hour,” according to company CFO John Harvey.

In the third quarter, Coinstar will make a final $10.8 million payment to McDonalds for the chain restaurants’ stake in Redbox.

Coinstar more than doubled its second quarter profit to $7 million for the three-month period ended June 30. That compares to the same quarter in 2008, in which the company earned $2.7 million. Revenue for the quarter was $314 million, a 42.8% jump from the $219.9 million generated during the same period in 2008.

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