Redbox Renews Universal Distribution Deal4 Feb, 2016 By: Erik Gruenwedel
Top kiosk executive acknowledges Redbox will become a smaller business over time
Redbox has renewed a longstanding multiyear distribution deal with Universal Pictures Home Entertainment, Erik Prusch, CEO of Redbox parent Outerwall, said on the company's Feb. 4 fiscal call. The previous contract expired Dec. 31, 2015.
Prusch, who is also interim president of Redbox, did not disclose financial, inventory or window details of the renewal, which likely mirrors renewals last summer with 20th Century Fox Home Entertainment and Warner Bros. Home Entertainment. He added that the distribution deals remain important to studios.
“Our movie and video game studio partners relay on physical discs as a key part of their window and revenue maximization strategy,” he said. “This would be very difficult to replace.”
The executive expressed frustration with Redox’s performance in the fourth quarter — a reality that saw former president Mark Horak depart shortly before Christmas. At the same time, Prusch didn’t appear to have an answer for what he characterized as “accelerated” secular declines in packaged-media rental, besides upping cash-flow management and profitability.
“As interim president, I have the opportunity to dig into the Redbox business in different ways and and assess opportunities for the brand by focusing on the fundamentals,” he said.
Those fundamentals include better management of expenses across the company and increasing productivity, which in the case of Redbox includes making kiosks operate more efficiently.
“Levers that worked in the past, such as investing in more content or certain marketing promotions, are no longer sufficient,” Prusch said.
In addition, inventory “overbuys” in Q4 are expected to negatively impact current first-quarter margins by 410 basis points (4.1%). The executive said greater emphasis on supply chain and reducing operating expenses, including unprofitable kiosks, would be the rule in 2016.
The box office this year is expected to generate eight more releases in the first-half of the year and three fewer in the second half. Redbox is expecting nine more game titles this year compared with last year. The company expects Q3 to generate the kiosk vendor’s lowest box office and new releases due in large part to Rio De Janeiro Summer Olympics.
“Historically, studios do not release titles during the summer games, which impacts rental volume and momentum at Redbox,” CFO Galen Smith said, adding that the company has projected a 20% decline in rental transactions this year.
When asked if Redbox would consider an annual price increase considering the gap between a new-release kiosk rental priced at $1.50 compared with a transactional VOD title at $5.99, Prusch said ongoing market testing would determine whether price hikes going forward are doable.
“It is one of the levers we’ll continue to monitor,” he said.
Switching to the big picture, the CEO said it cannot be dismissed that more than 587 million physical movies and games were rented at Redbox kiosks in 2015.
“Millions of every day consumers rely on Redbox as the new-release market leader at the best value,” he said, adding that consumers use the service as a complement — not alternative — to digital distribution.