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Analysts: Redbox Should Dump 'Instant'

28 Jul, 2014 By: Chris Tribbey

The gig is up on Redbox Instant and subscription streaming, say analysts

The return-on-investment (ROI) for Redbox Instant is negligible and future capital expenditures on the hybrid disc/subscription streaming service should be halted, according to analysts. Instead, analysts say the kiosk vendor should stick to dominating the disc rental business.

Since its launch in 2013, Redbox Instant by Verizon (the venture’s co-partner) has produced few fiscal returns on parent Outerwall’s investment (nearly $65 million to date). The company has never disclosed a subscriber base, and Verizon typically defers questions about the late-launched competitor to Netflix, Hulu Plus and Amazon Prime Instant Video to Redbox.

“[We’re] pessimistic that Redbox Instant will ever generate meaningful profits,” Wedbush Securities analyst Michael Pachter wrote in a July 28 note. “In our view, Outerwall should withdraw from the venture as soon as it is permitted.”

Meanwhile, Outerwall, which releases financials July 31, is projected to report between $560 million and $580 million in revenue, with Redbox accounting for about $458 million, according to analysts’ consensus.

Redbox has reached a saturation point with kiosk installations in the United States (it plans to remove about 500 units this year), but a push by the company to increase Blu-ray Disc and video game rentals should help deter consumers from considering transactional video-on-demand, Pachter said.

“There is a significant difference in pricing between DVD rentals ($1.20 per day at Redbox) and VOD ($4.99 to $5.99), suggesting to us that price-sensitive customers will favor a Redbox rental over VOD for many years to come,” Pachter wrote. “We do not expect VOD pricing to decline, and note that it has not done so since pay-per-view was introduced in the 1990s.”

B. Riley & Co. analyst Eric Wold concurred, saying Outerwall should make kiosk revenue a priority.

“We continue to believe this needs to be accomplished without increasing rental prices given the price inelasticity seen by management when testing prices above $1.20 a night,” Wold wrote in a note.


About the Author: Chris Tribbey

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