Redbox pushes back under new ownership

June 5, 2017 | by Elliot Maras

graphic courtesy of Redbox

Redbox, now under private ownership, has announced plans to add 1,500 kiosks and counteract the contraction in its rental units that has occurred in the last few years. The expansion is part of an initiative the company has taken under its new owner, Apollo Global Management, a private equity firm that acquired Redbox's parent company, Outerwall, for $1.6 billion last fall. Apollo has split Outerwall's three segments into distinct businesses so that Redbox is now separate from Coinstar and ecoATM.

Galen Smith is bullish about Redbox's future under its new ownership.

"As a public company, we weren't getting full value for the power of the business, the number of customers we have, (and) the cash flow the business generated," Galen Smith, CEO of Redbox, told Kiosk Marketplace in a recent interview.

"They (Apollo) said if each business was separate, and able to manage based on the best opportunities that they have ahead of them, as opposed to trading between parties amongst the three, this could generate incremental value and opportunity," Smith said.

Prior to the separation, the three companies shared a sales staff. Redbox now has a dedicated sales team.

"They're essentially run as three separate companies, which really allows Redbox to focus on what's best for Redbox," Smith said. There is a new focus on what is best for serving customers and retail partners, as well as determining how to generate more value in the business.

"No one can do what we do better in terms of providing consumers the latest movies at the best value," Smith said.

Redbox customers are now able to go online and reserve a movie and video game purchase at a kiosk.

Compensating for kiosk removals

The new kiosk installations will more than cover the units removed last year, which was just under 1,000 machines. The company began removing kiosks over the past few years, oftentimes on account of underperforming locations. What the company had not been doing aggressively was replacing underperforming locations.

The company has to install between 500 and 1,000 kiosks per year to cover attrition caused by locations closing, Smith said.

"What really matters is how do we drive more margin dollars," he said. "You have an opportunity to do that by installing more kiosks."

The company has placed a couple hundred kiosks with Walmart stores this year, he said. There is also opportunity in the dollar store, grocery store, convenience store and drug store channels.

Smith said Redbox is the most profitable part of the retailer's business on a per square-foot basis.

Rental units peaked in 2012

Redbox kiosks were at their peak in 2012 when there were about 43,500 units, according to Kate Brennan, director of communications.

"As noted in our most recent announcement, we will be back to 41,500 by the end of this year, and have plans for additional installations in 2018," Brennan said. 

Smith disputes the perception that home movie rentals will be replaced by streaming video. In his view, the removal of rental kiosks has contributed to this trend in recent years.

"If you take kiosks out of the marketplace, rentals are going to go down," he said. "Even though there's a general decline in the marketplace, we think we can help mitigate the overall decline by installing at additional locations."

Whatever the cause of declining rentals from kiosks, subscription movie downloads are on a growth trajectory. According to Digital Entertainment Group., a trade organization, consumer spending on paid subscription streaming grew 26.32 percent from the first quarter of 2016 to the first quarter of 2017, while spending at rental kiosks declined 17.23 percent.

Nevertheless, Smith believes kiosks can provide consumers the content they want at the value they seek.

Survey finds support for Redbox

The company recently released results of a survey of more than 1,000 U.S. households which found 48 percent of Americans chose Redbox as the best value for renting new release movies, compared to only 30 percent for their cable/satellite provider (on demand), 19 percent for Amazon Prime, and 3 percent for Apple's iTunes.

However, 68 percent of Redbox users believe Redbox is the best value for renting new release movies, 16 percent for Amazon Prime, 14 percent their cable/satellite provider (on demand), and 2 percent for Apple's iTunes.

Smith contends consumers will choose discs over streaming video on account of quality, as well value for their dollar.

"Blu-ray is much better than any other format that's out there today from a streaming standpoint, and we offer that to our consumers today," Smith said.

Ultra High Definition, a new disc format known as UHD, gives a true, 4K experience, Smith said. Redbox is not in this space yet, but as the market grows, "It's obviously a place for us to move into," he said.

"You cannot deliver that over the Internet," he said. "It's not possible. The only way you can deliver it is through a physical disc."

"We're offering consumers the latest and freshest content, which really is only available if you want to go to a store and buy it," he said. "Or if you want to transact digitally and pay that $5 or $6." Cable TV companies that offer new release movies with their monthly subscription fee generally charge an additional $4.99 to $5.99, or three to four times more than Redbox, to rent the exact same movie title.

Smith further claimed new releases will not be available on streaming (Internet, satellite or cable) platform for nine to 12 months, if at all.

"We're getting these movies to our consumers at the best value, and in the earliest windows," he said. "We have movies available that may never be on Netflix, or will not be on Netflix for years." he said.

Redbox recently signed an agreement with Warner Bros. Entertainment Inc. that will make theatrical new release DVD and Blu-ray disc titles available at Redbox seven days after their retail sell-through date.

Redbox has a digital video on demand service in beta. Smith did not wish to comment on the company's plans about this since the company has not made any announcements about it.

A change in ownership has given Redbox a chance at regaining some if not all of the prominence it held in movie rentals. Whether rentals will flourish in the face of streaming video remains to be seen. But it's a challenge Redbox has committed itself to.


Topics: DVD Kiosks, DVD Rental Kiosks, Manufacturers, Outdoor Kiosks

Companies: Netflix, Digital Entertainment Group, Outerwall, Warner Bros. Entertainment Inc., Apollo Global Management, redbox, Blu-ray



Elliot Maras
Elliot Maras is the editor of KioskMarketplace.com and FoodTruckOperator.com.

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