Article
Redbox COO discusses redbox/Coinstar strategy shifts
Coinstar reaping more than just financial fruit from its DVD-rental kiosk investment.
May 5, 2010 by Matt Cunningham — Editor, NetWorld Alliance
This has been a good year for Coinstar.
The Bellevue, Wash. based company reported this month that its first quarter earnings exceeded $350 million, up more than 46 percent from the $238 million earnings it reported for the first quarter of 2009. According to a report by The Street, the company earned 21 cents a share, versus the 13 cents per share expected by market analysts. As a result, the company's stock price rose more than 16 percent Friday, the day after the results were announced.
In a company press release on the results, officials minced few words when citing the source of the company's success.
"The traction we gained in the first quarter indicates we are well-positioned for continued success in our DVD business, renewed growth in Coin and increased profitability," said Coinstar CFO J. Scott Di Valerio in the release.
He could have conceivably omitted reference to the company's coin-cashing vertical and still said the same thing. Revenue from redbox DVD-rental kiosks accounted for $263.2 of the total quarterly revenue, a 70 percent increase over redbox revenue in the first quarter of 2009.
But what does this mean for Coinstar's long-term prospects? A post on trading site Benzinga suggests that the company may be growing too dependent on redbox for its continued success. Is this the case? How will the company's namesake coin-exchange kiosks fit into future business plans?
According to redbox COO Gregg Kaplan, the integration of Coinstar's main self-service offerings is much more complete than the Benzinga question makes it appear.
"There's a consensus strategy that is really the same strategy for both companies," he said. "It's one and the same now."
Kaplan explains that, prior to redbox's massive series of nationwide deployments, Coinstar's business strategy focused on tapping a retail client's "fourth wall," the front-of-store space past the register, where one once found grocery-store cart corrals and simple vending machines. Coinstar's focus was to leverage self-service technology to fill the fourth wall with profitable offerings.
"Coinstar would bring to the client other products and services and benefit the store," he explained.
With the wholesale consumer adoption of DVD-rental kiosks and the subsequent success of redbox, however, that strategy has changed.
"We don't want to do just anything on the fourth wall," Kaplan said. "We want to do something that leverages our core competencies."
While this strategy is a shift for Coinstar, Kaplan says it wouldn't have been possible without the foundation laid by the company's namesake change-handling kiosks.
"Certainly, the coin business is a fabulous business, and helped us develop our competencies in building and deploying machines," he said.
Now, Kaplan says, redbox is returning the favor to its sibling vertical. The DVD-rental kiosks have taught Coinstar how to better develop products that play well to its automated-retail strengths. While Kaplan declines to cite specific new products the company has in testing, he does note that the company is actively pursuing new verticals that bring high-end self-service to new markets.
"It's a narrower strategy than where Coinstar was, but I think it's a more robust one and I think it's going to work out very well."
Kaplan also has a response for critics' suggestions that DVD-rental has a limited lifespan in a digital media world: redbox isn't about to sit still.
"We recognize openly that there will be a day when physical media will probably start to face some headwinds from new technology," he said. "Our plan is to be shifting with it, leveraging the redbox brand."
And as future trends shape redbox, Kaplan says that both it and its parent Coinstar will adapt and grow together.
"Within the context of how one company changes the other, we're trying to adapt to a philosophy of both companies focusing on customers, bringing increased value and as much innovation as we can," he said. "If we can consistently do that, I think we've got a long-term winner."
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