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Issue Date: Vol. 50, No. 3, March 2010, Posted On: 2/16/2010


Redbox DVD Rentals Drive 50% Revenue Growth For Coinstar In 2009


Emily Jed
Emily@vendingtimes.net
Redbox DVD kiosk, movie rentals, Coinstar, self-service coin counting, bulk vending, vending, vending machine, vending operator, coin-op machines, Scott Di Valerio, National Entertainment Network Inc.

BELLEVUE, WA -- Growth in its Redbox DVD vending business led to Coinstar's 43.9% revenue increase during the fourth quarter of 2009. Revenue in the quarter that ended Dec. 31 rose to $328 million from $227.9 million a year earlier. Revenue from its DVD-rental machines jumped 73.2% to $231.8 million in the quarter, compared with $133.8 million in the fourth quarter of 2008. Net income for the fourth quarter was $5.5 million, an increase of $4.2 million in the fourth quarter of 2008.

Full-year revenue for 2009 rose 50.3% to $1.1 billion, compared with $761.7 million in 2008. According to Coinstar, the increase reflects growth in DVD rental revenue, which was $773.5 million in 2009 compared with $388.5 million in 2008, an increase of 99.1%.

Coinstar’s net income for the full year was $55.8 million, up from $14.1 million in 2008. Both 2009 and '08 include the impact of discontinued operations from the sale of Coinstar’s entertainment business -- skill cranes, coin-op amusements and bulk vending machines -- of $28 million in 2009, and a loss of $5 million in 2008.

Growth in DVD revenue for the fourth quarter and the full year was driven by the 8,700 self-service kiosks installed during the year, as well as revenue growth at existing machines, the company said.

The company sold its entertainment services business last fall to National Entertainment Network Inc. (Louisville, CO) to focus on its Redbox DVD rental kiosks and coin-counting machines. The sale included its bulk vending, kiddie ride, skill crane and videogame business. Coinstar had grown through a series of acquisitions to become the nation’s largest operator of bulk vending and skill crane machines. Read more about NEN's acquisition.

For 2010, management expects revenue in the range of $1.47 billion to $1.57 billion, EBITDA of $250 million to $265 million, and earnings per share in the range of $1.50 to $1.65.

Coinstar officials were careful to say that guidance for 2010 includes the impact on revenue and costs related to challenges in securing DVD content, as well as the number and timing of planned kiosk installations.


NEW-RELEASE MOVIES DRY UP

As its $1-a-night rental kiosks have continued to gain traction with bargain-conscious patrons, sales of new releases at competing retail stores have fallen, prompting studios to make it increasingly difficult for Coinstar to secure new releases. And Coinstar is under even more pressure to find ways to buy DVDs directly from the studios that produce them, now that Wal-Mart and Target have imposed purchase quotas on new releases.

Businessweek reported that Target and Walmart stores have imposed strict limits on the number of DVDs any one customer could buy at one time. Both retailers have a cap of five DVDs on new releases. The retailers say they imposed the limits to ensure new releases are accessible to as many customers as possible.

Before the limit imposition, Redbox reportedly got about 40% of its new DVDs from retailers. The Coinstar subsidiary also purchased DVDs directly from some studios. But many of the most prominent studios have refused to make new releases available on the day they become available for sale in stores.

Redbox has sued several studios for limiting its access to new-release DVDs, and reached agreements last year with Sony Pictures Home Entertainment and Lions Gate Entertainment to distribute new DVDs on their release dates. Paramount Home Entertainment currently offers titles on a limited basis through Redbox, which has agreed to destroy the titles rather than sell them after they are removed from its kiosks.

Redbox has a pending antitrust lawsuit against 20th Century Fox that is seeking to compel it to release new movies on the date the DVDs are made available in stores. It also sued Universal and Warner Bros. Businessweek observed that the new limits by Wal-Mart and Target might force Redbox to accept less favorable terms to resolve the dispute.

Redbox kiosks are located in more than 19,000 locations, including Walmarts, grocery stores, and McDonald's restaurants.


NAMES IN THE NEWS

In other news, Coinstar announced the appointment of J. Scott Di Valerio as chief financial officer effective March 2. He joined the company on Jan. 19 and is working with Paul Davis, Coinstar chief executive, before taking over as CFO. Last September, chief financial officer John Harvey submitted his resignation and left the company on Nov. 9.

Di Valerio has more than 25 years finance, operations and management experience, most recently serving as president of the Americas for the Lenovo Group Ltd., a computer manufacturer. Previously, he held senior positions at Microsoft Corp., where he served as corporate vice-president of finance and administration and chief accounting officer, and as corporate vice-president of the original equipment manufacturer division.

Before joining Microsoft, Di Valerio was a vice-president at Walt Disney Co. and chief financial officer at Mindwave Software Inc. He also was a partner at PricewaterhouseCoopers.


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