Redbox‘s revenue grew 38% to $502.9 million compared with the first quarter a year ago, giving parent company Coinstar healthy earnings to report after the closing bell today. Redbox’s kiosk DVD rental service saw growth owing to a year-over-year …
Verizon is starting to hold “major discussions with content providers on cross-synergies” for the phone giant’s still mysterious streaming video venture with Redbox — which is due to go live in August — CFO Francis Shammo told investors today at the Deutsche Bank Media & Telecom Conference. Verizon’s hoping that the new offering, seen as a potential rival to Netflix, will give it more leverage when it negotiates programming deals for its FiOS video service which competes with cable and satellite. “We were last to market and, obviously, the content providers made us pay a premium price for that,” Shammo says. But in its new negotiations with studios, Verizon’s seeking “a content play for all of our platforms, not just for one.” He notes that FiOS is now the fifth largest video provider, Verizon Wireless has about 100M subscribers, and Redbox attracts about 30M customers to its 35,000 kiosks. There’s still no word on what the venture with Redbox will offer and how much it will cost. The companies have said that it will be a national service, involve electronic sales and rentals, and include a tie-in with Redbox’s DVD rental kiosks. Verizon’s wireline unit will own 65% of the joint venture. ”Wireless is not involved,” Shammo says.
The kiosk company already buys Warner Bros discs on the open market instead of accepting the studio’s insistence that it wait 56 days for new releases. And Paul Davis, CEO of Redbox parent Coinstar, says he’s “comfortable that we could deal with” a similar situation if Universal or Fox also try to change their current arrangement to hold new releases for 28 days before selling discs directly to Redbox. The kiosk company says it offsets the higher price it pays retailers for Warner Bros’ new DVD and Blu-ray releases by carrying fewer of the studio’s titles. “We’re not buying every single movie” from Warner Bros, he told analysts at the Pacific Crest Emerging Technology Summit. ”We’re pretty selective.” The company expects to “learn a lot more as we go through the quarter” about how many discs to buy to satisfy consumers and still make a profit. Although Redbox is prepared to do the same thing with Universal and Fox, Davis says “I don’t believe that’s where we’ll end up.”
Coinstar shares are up more than 13% in after-hours trading on a big news day for the relatively small parent of Redbox. The twist with the announcement involving Blockbuster Express is that the kiosks you see in supermarkets and drug stores aren’t owned by Dish Network, which last year bought the famous video rental chain. The kiosks are made by NCR, which had licensed the Blockbuster name. But now its chief competitor, Coinstar, says it has agreed to buy the NCR Entertainment business line for up to $100M. Coinstar also says that it will “procure from NCR hardware, software and services” that will provide NCR with $25M over five years. NCR had been looking to get out of the kiosk business, which had also become a thorn in Dish Network’s side. The deal needs to pass muster with anti-trust regulators. If it does, then the companies expect it to close in 3Q. If it doesn’t, then Redbox will have to pay NCR a $10M break-up fee. NCR sent Blockbuster Express customers an email today assuring them that until the sale closes “we will continue to run the business as we have been, focused on bringing you the latest New Release movies with most titles only $2 for the first night.”
UPDATED, 10:25 AM: The new streaming video deal between Verizon and Redbox-parent Coinstar has all of the hallmarks of an announcement that had to be made — even though the companies weren’t ready. Coinstar CEO Paul Davis promised in October to announce his streaming video plans by the end of 2011, and probably felt he had to say something before he meets with analysts later today to discuss his company’s 4Q earnings. All he has to offer, though, are puffy promises, and few details, about the subscription service to be offered in the second half of this year. We don’t know whether it’ll be competitive with Netflix because the companies won’t say what they’re offering consumers and how much they’ll pay. The proposition will be “simple, affordable, and fun,” Verizon Telecom VP of Consumer Product Management Eric Bruno tells me. We don’t even know what studios — if any — have agreed to participate. “We both spend a lot of money with studios, and they love this idea,” Redbox SVP of Finance Galen Smith tells me. Even Warner Bros? Last month the DVD kiosk company let its disc purchase contract with the studio lapse rather than accept its requirement for Redbox to wait 56 days for new releases. “I wouldn’t presume that because of how things are going on the DVD side that they won’t have their content as part of this venture,” Smith says.
Looks like Redbox has told Warner Bros to take a hike with its effort to double the waiting period for new rental DVDs to 56 days. When the contract to acquire discs directly from Warner Bros expires today Redbox will “work to provide Warner Brothers’ movies through alternative means,” says Gary Cohen, SVP for marketing and customer experience. He adds that Redbox “maintains direct working relationships with every other major studio.” Disney, Paramount, and Sony provide new DVDs to Redbox the day they’re released; Universal and Fox require the kiosk company to wait 28 days. Redbox is taking a big risk by choosing to buy Warner Bros discs from outside sources: That could be more costly. What’s more, the company may not be able to buy enough copies of hit films to satisfy its customers — especially if Warner Bros can persuade retailers to cap the number of the studio’s discs they’ll sell to a single customer. (Earlier this morning Walmart agreed to continue housing Redbox kiosks to early 2015.) But Warner Bros also is taking a gamble: There’s nothing to stop Redbox from flooding the market with used Warner Bros DVDs a few weeks after they’re released, when rental demand for the titles lets up. Still, Warner Bros wants to increase the delay before providing discs to low-cost rental companies because it believes that will help to boost sales. That’s become an important initiative for Warner: It’s also leading the pack in offering discs under the entertainment industry’s Ultraviolet campaign which makes it possible for buyers to also stream movies to digital devices. Earlier this month Netflix agreed to the 56-day delay. Studios fear that their profits will
The big question following this expected announcement is whether Redbox and Blockbuster will tell Warner Bros to take a hike and buy the studio’s new discs from retailers. That’s one reason why other studios have been reluctant to push …
The video rental company’s shares have spiked 6.8% in midday trading — an eye-popping standout on a day when the market’s down about 2%. The reason: website DealReporter says that Verizon is considering buying Netflix to get into the video streaming business. There’s just enough going on to make this plausible: Last week, Verizon CEO Lowell McAdam said that his company wants to offer video streaming, and had even looked at Hulu when it was on the block. He declined to comment on reports Verizon is preparing to team up with Coinstar’s Redbox. TechCrunch said that the companies were so far along in their plans, code-named Project Zoetrope, that they had set May 28 as the date when they’d commercially roll out their video download and rental service. Coinstar has said that it would unveil its video streaming plans by year’s end.
NCR wants to sell the Blockbuster Express DVD kiosk business, but it may have to deal with some angry customers on Tuesday when it implements its 3-2-1 pricing plan. The company will continue to charge $3 for the first night to rent a DVD that’s been out 28 days or less. (Actually new movies will cost a penny more; they’re now $2.99.) The big change involves DVDs from the 29th to the 90th day after they’ve been released: NCR is raising the first night price to $2 from $1. After 90 days the price drops to $1. In each case it costs an extra buck for each additional night. (Blu-ray discs cost $1 more than DVDs in each window.) Why is NCR making the change? It has some PR cover; Redbox just increased its price to $1.20 from $1. And last week NCR’s John Bruno told analysts that the company is exploring “profit-enhancing initiatives including premium pricing for the new releases.” NCR also wants to keep studios happy: With its higher price, Blockbuster Express isn’t subject to the 28-day delay on new releases that
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.
A spokesman for DEG: The Digital Entertainment Group says the trade organization didn’t deliberately choose a Friday afternoon to release its dreary new report about consumer spending on home entertainment in the first half of 2011. But from a PR perspective it probably doesn’t hurt to bury news that shows VOD and electronic distribution still can’t make up for the collapse in sales of DVDs. The headline number is that consumer spending on all forms of home video — including DVD and Blu-ray disc sales and rentals, VOD, and online — fell 5.1% vs the first half of 2010 to $8.3B. Last year, spending fell 3.3% in the first half of 2010. DEG says this year’s drop isn’t so bad because last year included Avatar. (It seems that the blockbuster was good enough to include last year when it made sales look strong, but is supposed to be treated as an anomaly now that it makes comparisons look weak.) Still, there’s no getting around the steep decline for DVDs. Consumers bought nearly $3.9B worth of DVD and Blu-ray content, down 18.3% vs the first half of 2010. At this time last year, disc sales were off 7.1% vs. 2009. DVDs are the culprit: Although DEG only reports figures for “packaged goods,” it notes that Blu-ray sales are up more than 10%.