Outerwall CFO: Redbox Instant 'Unlikely' to Turn Profit This Year

21 May, 2014 By: Chris Tribbey

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Galen Smith, CFO of Redbox parent Outerwall, said that a year into the consumer launch of Redbox Instant, it’s “unlikely” the hybrid disc-streaming service the company co-owns with Verizon to turn a profit this year.

But he does see that changing soon.

In the first quarter, Redbox catered to an estimated 35 million individual consumers at its kiosks, “and that’s a relationship the studios don’t have [on that scale],” Smith said, speaking at the B. Riley & Co. Investor Conference. “What we know about our consumers is that they’re very loyal. They love the Redbox product, they love the value, and they love the convenience. What we want to do is meet their content needs, regardless of format, and that includes digital.”

Turning more of those disc consumers on to Redbox Instant is a priority (Outerwall has already invested $63 million in the venture), and Redbox is doing that by making the service bridge between disc and digital (for $8 a month, subscribers get four one-night disc rentals at kiosks and unlimited streaming).

“We have something that’s very unique,” Smith said. “[We’re] bringing back the best of what Netflix did early on.”

Redbox Instant’s success would provide a much-needed boost for Redbox’s bottom line. After years of double-digit revenue growth, Outerwall is forecasting revenue percentage growth in only the single digits this year. After installing kiosks at a very rapid pace year after year, Redbox will actually remove some kiosks this year.

“In the last couple of years we’ve installed a lot of kiosks very quickly, and we saw double-digit growth,” Smith said. “Now how do we continue to improve the network that we already have?”

Redbox upgraded many kiosks to include 80 more slots, numbers that when added up effectively gave Redbox the equivalent of 5,000 more kiosks. And Redbox is looking to both offer better personalized recommendations for those who sign up for alerts of new content, and is marketing to consumers, in an effort to get them to upgrade from DVD to Blu-ray Disc (moving from $1.20 to $1.50 per night).

Overall, Smith said consumers still realize the value proposition: a Redbox kiosk rental is still by far the cheaper option, compared with both cable VOD and Internet VOD.

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