Coinstar confirmed its intent to transition Redbox into online streaming next year but is still in negotiations to find the right partner, the company said in its third-quarter earnings call Thursday. But the king of kiosks really should get cracking given the way Netflix (NSDQ: NFLX) and others are gaining ground.
Despite speculation from an analyst that Coinstar would name its partner on the call, all CEO Paul Davis and Redbox president Mitch Lowe would confirm is being “at the table in negotiations discussing possibilities with a number of potential partners” that would provide the technology and added content. He wouldn’t say with who, though the speculation has included Wal-Mart (NYSE: WMT), Amazon (NSDQ: AMZN) and Sonic Solutions.
But it was clear from the call that Coinstar wanted to make a definitive declaration of intent after many months of speculation that Redbox was heading in this direction. Coinstar would have looked stupid if it hadn’t shown any of its cards given all the aces it can play: a terrific brand, a network of kiosks approaching 30,000 by year-end that could function as billboards and a consumer base of 21 million users who have already given over their e-mail addresses. What’s more, Davis reported that 91 percent of its base has broadband connections and they want a a broader selection than the paltry 200 movies Redbox stuffs into each kiosk.
In short, the potential for Redbox to not only be viable in this space but eventually lead the pack is very real.
So what is taking Coinstar so long? To hear Lowe tell it, there’s no rush to market given the “running head start” Redbox’s ubiquity gives, but there’s clearly more to that calculation. For one thing, Coinstar was very clear that physical discs still deliver tremendous value (3Q DVD revenues were up 54 percent, to $305.5 million); getting more attention than digital these days is the addition of Blu-Ray discs, video games and “duals,” second kiosks in locations where just one isn’t doing the trick.
But while Coinstar figures out its digital future, there are plenty of competitors habituating consumers in the early days of the streaming marketplace. Netflix will do an estimated 300 million streams this year across a wide range of devices, and Sonic is powering everyone from Blockbuster (NYSE: BBI) to Best Buy to do same. By standing on the sidelines, Redbox risks ceding ground.
Coinstar may be holding out for the right terms. Or maybe the company is hanging back to watch the first movers wash out in a space where the business model is far from clear.