Redbox CEO: 'We're not pleased'

Aug. 1, 2014 | by Nicole Troxell
Redbox CEO: 'We're not pleased'

Outerwall's consolidated revenue fell from $553.1 million in the second quarter of 2013 to $549.2 million, a $3.9 million decrease in the second quarter of 2014, the company reported in a July earnings call. The decline was attributed to "the impact of a weak content release schedule on the Redbox business, partially offset by an increase in revenue from the Coinstar segment and the inclusion of the ecoATM business," the company said.

"We produced solid results in the second quarter of 2014 with consolidated revenues and profitability in-line with our expectations despite weaker than expected performance from our Redbox business," Outerwall Chief Financial Officer Galen Smith said. "In addition, we generated strong cash flow in the quarter and repurchased $50 million of our common stock, reflecting our commitment to returning cash to shareholders."

"Our 2014 second quarter results reflect our ability to leverage our core capabilities of operating and scaling automated retail businesses profitably despite the impact of a weak content release schedule on our Redbox business," Outerwall CEO J. Scott Di Valerio said.

Despite the impact of new release content on Redbox sales, the company saw a 2.7 percent increase in net revenue rental from the second quarter of 2013 due to the higher rate of Blu-ray rentals. The company also saw a rise in consumer engagement compared to Q2 2013, with an increase in Redbox app downloads and email subscriptions.

Outerwall's Coinstar segment experienced a 21.1-percent increase in operating income and an increased operating margin at 38.6 percent compared to the second quarter of 2013. Coinstar's success is primarily due to a growth in U.K. kiosks, decreases in research and development costs, and a rise in U.S. prices, the company reported.

On the Canadian front, Di Valerio admitted the company's Redbox Canadian kiosks are "not performing at the levels that [they] would want."

"Part of that is the density wasn't there," Di Valerio said. As Redbox installed kiosks over the last couple of quarters in Canada, the company said that density played a factor in its Canadian success. It is working on making certain the desinity increases "so that rent return becomes a reality," the company said.

Redbox is taking a three pronged approach to improve performance. Besides density measures, Redbox is working on getting "the right amount of content in the kiosks at the right time in Canada," as well as making sure it understands its Canadian consumers' needs, Di Valerio said. 

Redbox's third measure has been to work together with retailers on marketing programs, which has led to some positive results: "We've run a few tests and it's significantly increased the overall rents per kiosk per day, so we're going to broaden out that work in order to drive the rents up there. We're continuing to work Canada, and making progress, but right now it's not where we want it to be, but we have a path to get it where it needs to be," Di Valerio said.

On subscriber progress for Redbox streaming video, Di Valerio said, "We're not pleased where the subscribers are to date," but he added that what the company does know is that consumers look to Redbox as a new releases platform regardless of form, which explains why the Redbox instant viewing is increasing. Redbox is continuing to work with Verizon to increase subscribership.

However, if Redbox streaming continues to stagnate, Di Valerio confirmed that the company will be forced to reevaluate whether they will continue to sink capital into the venture.

"If we don't hit certain subscriber threshold, then we have some decisions to make in March," he said.

Di Valerio would not comment on whether customers will see a rise in Redbox prices.

Redbox parent company Outerwall is the same company that manufactures phone recycling ecoATM kiosks, which have been the subject of recent controversy over whether the ATMs encourage theft of cell phones in exchange for cash from the machines.

On why Outerwall delayed rolling out ecoATMs, Di Valerio reminded callers that 70 new kiosks were installed in the second quarter with another 150 added in July. He said the company has the capacity to move relatively quickly "from a deployment standpoint and from a manufacturing standpoint," but that rollout has stalled due to the time it takes to work with new contracts and retailers in a relatively new company. 

EcoATM providers are confident that as they continue to work with retailers they will quickly "hit those numbers" and deliver on the 1,000 to 1,100 new kiosks expected, he said.

Topics: Customer Experience, DVD Kiosks, DVD Rental, DVD Rental Kiosks

Nicole Troxell
Nicole’s work has appeared in business, education, technical, and travel publications. She is currently the editor of and wwwView Nicole Troxell's profile on LinkedIn

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