Redbox to Expand Videogames to 27,000 Kiosks By Q3

Coinstar, which gets videogames through a distributor, is adding titles to another 5,000 kiosks in Q3, expanding from a test that began with 250 kiosk tests in Reno, Nev., and Wilmington, N.C. Videogames typically fill three to four percent of the 800 slots in a standard Redbox kiosks, company officials have said. In July, Redbox hit four million videogames rental since the tests began in 2009. The games have a $2 daily rental fee. “Videogames are a natural extension for Redbox, giving consumers more entertainment options and another reason to visit our kiosks,” Davis said.

In the DVD business, Redbox installed another 1,500 kiosks in Q2, “slightly below” the original forecast, to end the quarter with 33,300 in 27,800 locations. Redbox has dual kiosks in some chains. Redbox increased its share of the DVD rental market to 34.5 percent in Q2, up 9.2 percent from a year earlier, Davis said. The DVD rental market is pegged at $6 billion to $7 billion. Redbox added 3.7 million email customers in Q2, increasing the total base to 30.5 million, Davis said. It also had 33.6 million credit cards used renting from Redbox during the quarter, up 25 percent from a year earlier, he said. The average rental was $2.18.

Redbox’s Q2 operating income improved to $46.6 million from $13.3 million a year earlier as revenue jumped to $363.8 million from $271.8 million despite “several” titles, including True Grit, “not performing as we expected,” Davis said. “We've talked a lot about the dynamics surrounding the lack of a steady stream of new interesting content in the kiosks,” Davis said. “If consumers are not drawn back to the kiosks by appealing content, the lower demand impacts traffic which happened in Q2."

Demand for Blu-ray titles continues to be lower than initial projections and the category accounts for three to four percent on a kiosk’s titles. It will increase to six percent by year-end, short of the original target of 10 to 15 percent (CED May 13/10 p4), but in line with revised projections of six to 10 percent (CED Nov 1 p3). Blu-ray titles typically rent for $2 and carry a 25 to 30 percent higher dealer cost than standard DVDs, company officials have said.

Coinstar will have a digital video download/streaming service in place this year, despite negotiations taking “longer than expected,” Davis said. Walmart’s Vudu and Amazon have been seen as potential partners for Coinstar (CED Nov 1 p4). “We're making progress and digital remains a top priority for the company,” he said. “We are approaching our digital plans in a thoughtful manner to make sure we are bringing consumers a viable additive offering that enhances the growth of the Redbox business.”

Coinstar’s total Q2 revenue increased to $435.2 million from $342.3 million as net income improved to $26.7 million from $13.3 million. Revenue from Walmart accounted for 17.3 percent of the total, down from 19.6 percent a year earlier. Walgreen and Kroger were 15.9 and 11.4 percent, up from 13.3 and 10.8 percent, the company said. Operating income from Coinstar’s coin-counting kiosks declined to $19.3 million from $20.4 million, despite revenue growing to $71 million from $70.3 million. Coinstar expects to complete installation of coin-counting machines in about half of Safeway’s 1,300 stores in Q3, with the remainder in place by year-end. Coinstar’s new ventures division, which includes Starbuck’s and Seattle’s Best self-service coffee kiosks, posted a $5.4 million Q2 operating loss, up from $2.1 million a year ago as revenue increased $301,000 from $125,000. New ventures had a $500,000 expense tied to the shutting down an unidentified self-service concept test, the company said.