Article

Outerwall turns to kiosks to push business boundaries

The company posted $554 million in revenue, although the figure is slightly lower than expected.

July 26, 2013 by Natalie Gagliordi — Editor of KioskMarketplace.com, Networld Media Group

Outerwall released its Q2 earnings yesterday, posting lower-than-expected revenues that the company attributes to a lack of demand for DVD rentals.

But CEO Scott Di Valerio optimistically pointed to the company's arsenal of kiosks, directing the focus of yesterday's earnings call toward the strengh of its core business, recent investments and new ventures that he said will beef up returns for the remainder of the fiscal year.

Core businesses

Beginning with Redbox, Di Valerio said expectations fell short, even though the kiosks maintained a high-frequency renter base and recorded their third-highest rental month of all time in June. As a boost to kiosk inventory, Redbox and Fox signed a distribution agreement that will continue through April 2015 — an addition to the extension made with Universal in Q1.

Addressing the recent shuffle of Redbox locations, Di Valerio said it should not be interpreted as a negative indicator for the business' future.

"We always want to make sure that we've got the right kiosk in, in terms of making sure that we're generating the right level of return to the kiosk," he said during the Q&A session. "And if they're not, redeploying them in more attractive locations. But I wouldn't read into it that we're seeing some kind of shift in terms of how they're producing."

Outerwall will explore different business models within the entertainment and ticketing space, after the Redbox tickets pilot also performed below expectations. However Di Valerio said the pilot did yield some results — like cluing them to fact that consumers see Redbox as a destination for entertainment in various forms.

Outerwall's other core business and former namesake, Coinstar, is on an upward track, as Di Valerio said they were making progress with a partnership with PayPal.

"We added the PayPal option to over 3,400 kiosks and we're moving ahead with marketing programs to increase consumer awareness of this product in conjunction with PayPal," he said.

New ventures

As part of its movement into the electronics space, Outerwall acquired the remaining shares of ecoATM, expecting the new segment to significantly boost its portfolio and returns.

During the Q&A, Di Valerio said that once a kiosk is installed, usage rates ramp up rapidly thanks to the hundreds of millions of phones that consumers purchase every year.

"You have 175 million phones that are getting purchased each year and 20 percent or so of those are getting turned in," he said. "And even if you think back a few years, and you add that 175 million a year for the past two or three years, a big majority of those are smartphones that are probably sitting in the drawers. So there's a lot of opportunity both picking up stuff that hasn't got converted as well as new products as people buy during the year."

Back in March, David Veenstra, Outerwall's SVP of new ventures and business development, said the Rubi coffee kiosks were performing well, despite the technical hiccups experienced with the second-generation model. But as Di Valerio said yesterday, the glitches still have not been fully worked out.

"What I'm not pleased with, frankly, with the kiosk is it's not producing a consistent cup of coffee at the levels that we would want to," he said, adding that they are making software adjustments, patches and hardware fixes, as well as exploring a more rapid design and production model that "has a little less complexity in it" that could bring the deployment figures into the thousands.

Read more about turnkey kiosks.