The stock is down 3.9% in initial after-hours trading. The maker of the Redbox DVD rental kiosks says that CEO Paul Davis — who has held the top job since 2009 — will retire in March, and be replaced by CFO J. Scott Di Valerio. The change comes as the company, in a joint venture with Verizon, begins to roll out a streaming service called Redbox Instant that aims to compete with Netflix and Amazon. The announcement about Davis’ departure also notes that Coinstar expects to hit its full-year and Q4 forecasts for revenue and cash flow growth with earnings from continuing operations at the high end of a range it provided. But that’s “primarily due to lower company G&A expenses and certain tax benefits at Redbox” — not necessarily strong results from the core business. Here’s the release:
The stock price is up more than 8% at midday after the New York Post said that the owner of the Redbox DVD rental kiosks is talking about selling itself to “an undisclosed private-equity firm.” Coinstar has a market value of about $1.7B. Some may consider it a bargain at a price that’s less than 9 times its expected earnings — relatively low compared to most media and technology companies. So, is the report accurate? CEO Paul Davis sidestepped the question today in an appearance at Canaccord Genuity’s Global Growth Conference. “We have no idea where [the story] came from,” he said. “We’re not in the business of commenting on other people’s stories. We’re head down focused on running the business and we’re happy with the progress we’re making.” He remains bullish about the prospects for DVDs and Blu-ray discs. “We looked at the music industry and saw how long it took before digital actually overtook physical and it was much much longer than people had anticipated.” He added that the company wants to play in both worlds, which is why it’s preparing to launch its Redbox Instant by Verizon streaming service later this year. In addition the company is “looking at other products that we think over time can repurpose the Redbox kiosks.”
Coinstar CEO Paul Davis — whose company owns the Redbox DVD rental kiosks — appeared on CNBC today to discuss a venture that’s almost as important to folks in the media business: coffee. Coinstar shares were up 6% after Coinstar said that by year end it will roll out 500 kiosks under the brand name Rubi that will offer Starbucks-owned Seattle’s Best Coffee. They’ll charge as little as $1 for specialty drinks including mochas and vanilla lattes. Davis also briefly discussed Redbox’s expansion plans, including the streaming venture with Verizon.
Web site TechCrunch appears to have filled in a key missing piece to the reports this week about Verizon’s plan to launch a digital service for movies and TV shows: The site says that much of the content would come from a partnership with Redbox. Beginning on May 28 the companies will offer consumers opportunities to buy credits that they could use to buy or rent videos online — or rent DVDs from Redbox’s popular $1.20 a night kiosks, the site says. It adds that the companies are “still in talks with content providers” and won’t seek to beat rivals in offering the newest releases. The video service would offer standard definition and HD streams and would work on the most popular digital platforms including Apple’s iOS, Google’s Android, Xbox, and Roku boxes. Investors are impressed by the information about the planning being done under the code name Project Zoetrope: Shares of Redbox’s parent, Coinstar, are up 7.9% on a lousy day in the market. The information jibes with Coinstar CEO Paul Davis’ statement to analysts in October that his company would unveil a digital streaming plan by year’s end, which he called “a top priority for the company.” This week Verizon CEO Lowell McAdam declined to discuss his company’s streaming plans.
There was an underlying message in Redbox parent Coinstar’s presentation to analysts yesterday following its 3Q earnings report: Warner Bros, Universal, and Fox had better not double the delay period for providing DVDs to Redbox. Despite his easy-going speaking style, CEO Paul Davis firmly indicated that such a strategy — increasing the window for those studios to as much as 60 days from the current 28 – would lead to corporate warfare and probably backfire. It would help Paramount, Sony, and Lionsgate, which recently extended their agreements to supply DVDs to Redbox the same day that they’re available elsewhere. (Disney also provides discs on opening day to Redbox.) What’s more, Redbox execs say that they can buy DVDs from other sources instead of securing them directly from the studios. “The great thing about the United States is that the first-sale doctrine gives you opportunity for workarounds, and we evaluate that … to protect the windows we enjoy today,” Davis says.
Coinstar executives say that they want a win-win solution — that studios have something to gain by helping Redbox. The company illustrated that with its new agreement to give Paramount 100,000 Coinstar shares for extending its day-and-date deal, with an option for 100,000 more if the studio takes it two years beyond 2014. They also subtly reminded studios that they’ll need Redbox if they decide to milk DVDs as long as they can while waiting for consumers to warm to cable and Internet VOD services. Coinstar noted that it recently became the leading renter of DVDs in the wake of Netflix’s blundering decision to raise subscription prices by 60% for people who want to to rent discs as well as digital streams.
UPDATE, 3 PM: CEO Paul Davis says the Redbox price increase to $1.20 a night followed “several months of testing” and was designed to keep prices “as low as possible for consumers” as operating costs rise. The company says that the “vast majority” of transactions at its kiosks involve debit cards affected by the Durbin Amendment, as opposed to credit cards. Customers will still be able to rent for $1 a night through November if they reserve a DVD online and then pick it up at a kiosk. He added that the company plans to unveil a digital streaming plan by year’s end, calling it “a top priority for the company.” Davis says Redbox has seen business increase from consumers who felt “disenfranchised” by Netflix’s 60% price hike for its combo DVD rental and streaming service, but he can’t say how many people defected.
On the studio side, Davis says Paramount just extended its agreement to provide DVDs to Redbox the same day they’re available in stores through 2014. The studio will receive 100,000 shares of restricted stock in Coinstar, and can collect an additional 100,000 shares if it exercises its two options that each would extend the agreement by a year. Redbox’s day-and-date agreement with Sony runs through September 2012, and one with Lionsgate goes through August 2014. It has similar deals with Summit and Anchor Bay.