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Summary:

Redbox parent Coinstar missed its quarterly revenue projections by a wide margin, blaming weak titles and its 28-day rental window. But it is also suffering due to competition from online services. After all, why go to a kiosk when you can rent from home?

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For years, Redbox has been flying high with DVD kiosks that offered cut-rate movie rentals for $1 a day. But Redbox might want to launch a digital rental service soon, before it sees its DVD kiosk business affected by Netflix and other services that allow consumers to rent and purchase movies from the comfort of their own homes.

Redbox parent Coinstar announced Thursday that its fourth-quarter revenue numbers would come in well below the company’s previous guidance. Revenues for the quarter topped out at $391 million, but that missed Coinstar’s forecast of $415 million to $440 million, which it provided during the company’s third-quarter earnings report. It also revised its earnings forecast for the quarter down, from a range of 79 to 85 cents a share down to between 65 and 69 cents a share.

The good news — if you can spin it that way — is that Redbox rental revenues continue to grow; they’re just not growing at the fantastic pace that Redbox hoped for. Redbox’s revenues in the quarter were up 38 percent year-over-year, but they only grew by $11 million from the third quarter. The revenue miss is telling, however, because Coinstar had a full month’s worth of rental data to go on when it gave its forecast, and yet it still missed the low range by nearly $25 million. So what happened?

In short, Redbox said it overestimated the strength of titles in its kiosks during the quarter and removed older, more popular DVDs too early. It also suffered from inventory imbalances due to a new “rent and return anywhere” policy that allows customers to rent a DVD at one kiosk but return it to another. And finally, it expected more traction on its new, higher-priced Blu-ray disc rentals.

To a certain extent, Redbox is beholden to the movies that the big Hollywood studios create. It notes that theatrical box office was down 16 percent for scheduled releases coming out in the period. In other words, people don’t want to rent crappy movies, even for $1 a day.

There are other factors at work, though. For one thing, Redbox is betting big on Blu-ray, adding high-def discs in kiosks throughout the U.S. But it might not be getting the traction on $1.50 rentals that it expected, as customers don’t see the value in paying a 50 percent markup for higher-quality discs. If Blu-ray titles aren’t renting as well as Redbox hoped, those discs are merely taking up limited space in already-crowded kiosk inventory.

The bigger issue, however, seems to be that Blu-ray players are Internet-connected by design, and many new Blu-ray players are sold with Internet services like Netflix, Vudu and Amazon Video on Demand built-in. That is, rather than go to the nearest Walmart or grocery store to rent a film for $1, consumers are finding it more convenient to simply choose and watch movies from the comfort of their own living rooms.

Redbox hopes to combat Netflix and others with an online offering of its own, but it’s been slow to launch. While the company announced on its third-quarter earnings call that it would roll out that service with a partner beginning this year, the specifics about what that service will look like — whether it will be a subscription offering like Netflix or a pay-as-you-go service like Vudu — were unclear. Given its slowing growth and pressure it’s seeing on the DVD kiosk side, it will want to introduce that service as soon as possible, especially if it hopes to leverage its brand with a new generation of connected devices.

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  1. Brian-TeleNav Friday, January 14, 2011

    This is interesting because I have a Netflix account and I still use Redbox occasionally. I think Redbox will always be popular with people who want a movie the-night-of.

  2. Top Posts — WordPress.com Friday, January 14, 2011

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  3. For over a month, there were no new movies to rent at Redbox. So I didn’t rent. I think it had to do with their 28 day window.

  4. Mainstreethost Friday, January 14, 2011

    The only advantage Red Box has is you can get first run movies faster. Netflix will put them out of business in the near future. mainstreethost

  5. Redbox needs to increase its inventory faster than what is available currently. Adding more redbox in more locations would help too. The online redbox rental for $1 would be a good idea.

  6. I like redbox, but the selection has really been sketchy lately at all the redboxes in my area.

    Maybe it is because they have console games taking up movie slots now. Maybe redbox is super popular, and all the movies that I would want to rent out are always already rented out. Maybe it is because they are loaded with old movies and big name knockoff titles these days.

    Whatever it is, I have found that I only visit a redbox every few weeks now instead of every week. If they went back to how they were originally, I’d go every week again.

  7. “In other words, people don’t want to rent crappy movies, even for $1 a day.”

    That’s the answer in a nutshell, until Hollywood starts producing some quality movies people won’t rent(or buy). Hollywood seems to think that remakes(eg True Grit) and sequels(eg Fockers) will be blockbusters.

  8. I have noticed some kroger locations are installing their own DVD kiosks in the store instead of using redbox. Or how blockbuster has started their own kiosk stations.

  9. I agree with Brian. I still use Redbox & Netflix, because the Netflix streaming library still sucks, and Redbox is quicker to get when you want a new title on a friday night (not 2-3 days from netflix).

    Even after the 28 day window Netflix still does not stream new titles.

    Redbox just added video games, but who wants to pay $1 day for video games. lol.

  10. Redbox’s Netflix Competitor: Too Little, Too Late?: Online Video News « Thursday, February 17, 2011

    [...] subscribers, which is up 63 percent over the last year. There’s also some evidence that Netflix’s aggressive streaming growth could be eating into Redbox’s kiosk rentals. As more people subscribe to Netflix and are able to access its streaming service across an [...]

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