Redbox Upping Content Spend to Overcome Delayed Releases

29 Oct, 2015 By: Erik Gruenwedel

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With 20 studio releases moved to next year, kiosk vendor doubles down on available content and video games

Following a third quarter undermined by scant new-release movies, Redbox envisioned the current fourth quarter returning to normal consumer rental patterns. That was until the kiosk vendor found out that 20 movies earmarked for Q4 retail release had been pushed back until the first half of 2016.

Without naming the titles, Galen Smith, CFO of Redbox parent Outerwall, said four of the titles represent about $1.8 billion of the current domestic box office. He said the 20 titles were projected to generate Redbox $60 million in rental revenue.

“The shift of titles makes 2015 the lowest annual box office for Redbox titles since 2011,” Smith told analysts on the Oct. 29 fiscal call.

Indeed, the projected release slate of 34 titles in Q4 was already 17% less than the 41 titles released in the previous-year period, according to B. Riley & Co. analyst Eric Wold.

“A lack of titles has been a difficult hurdle to overcome in past periods in terms of getting rentals when consumers ‘window shop’ at the kiosk,” Wold said. “That is why I believe the underwhelming momentum coming out of Q3 will continue in Q4 — and it will be imperative that management does some strategic promotions throughout the quarter to boost awareness and get some positive momentum going into Q1 [2016] when those delayed titles hit the kiosks.”

Outerwall CEO Erik Prusch said Redbox would up efforts to re-engage consumers with social media messaging and targeted promotions.

To increase kiosk traffic, Redbox plans to acquire more content than normal, including maintaining increased copy depth for select (and available) titles — a strategy it employed in Q4 2012. All of this will impact margins, which Redbox had increased over the previous five fiscal quarters.

“We have significant work to do to make sure we are maximally effective,” Prusch said. “We believe the additional content [quantity] is critical to consumers returning. We also expect significant increase in video games rental revenue.

The executive said Redbox has inked distribution agreements with key game publishers for next-generation consoles PlayStation 4 and Xbox One.

“We’re seeing that more people want to come and rent [next-generation] video games. This has been a transition [in games]. For us, how do we get to the right level of the installed base for PS4 and Xbox One? Q4 is a big time for new [game] releases, and we’re looking forward to providing that to consumers.

When asked whether increased title copy depth and games was enough to offset secular declines in packaged media, Prusch said Redbox was uniquely qualified to meet the challenge through a strong retail footprint and brand recognition. 

“We still provide the best value for new-release content,” he said.

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