Redbox Sales Tumble in Fourth Quarter - 28-day Delay To Blame?

Posted Fri Jan 14, 2011 at 11:35 AM PST by Dick Ward

Stock for Redbox parent company Coinstar took a 24 percent hit on Friday in response to lowered sales estimates released for the fourth quarter.

It's inevitable that when a service or product skyrockets there's going to be a time where everything starts to even out, in the case of Coinstar's Redbox service, that moment may have arrived in part due to highly unpopular deals cut with Hollywood studios that delay rental access to the latest releases. Like Netflix, Redbox has signed on to a deal that gets them access to discs at a lower cost, while giving the studios a four-week window in which to sell their releases before they hit the rental market. That agreement may be hurting the company's bottom line.

Michael Pachter, an analyst with Wedbush Securities, believes the delay requires Redbox to do a better job selecting titles for each rental location, to ensure customers continue to rent, even when the assortment of titles is not as fresh as before the delay window was imposed. "The miss is attributable to poor inventory management," Pachter concluded. This would seem to coincide with company reports that kiosk traffic remained strong, even as the number of rentals per customer decreased. It will be interesting to see if this fall in rentals coincided with increased retail sales of delayed rental titles within the same release window.

"We have already taken a number of decisive steps to better align content purchases with our consumers' behavior, including offering more day and date titles and better allocating Blu-ray titles to high demand areas," said Chief Executive Paul Davis.

It remains to be seen if the savings brought about by the 28-day delay will balance out the losses resulting from reduced business. As of today, the hit to the company's stock is undeniable, with stocking falling $13.80 to $43.15 in after-hours trading on Thursday, and the plunge continuing down $13.97 (24.5 percent) to $42.92 by noon on Friday.

Source: Seattle Times news service

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Tags: Industry Trends, Redbox, High-Def Retailing, Corporate Synergy Gone Awry (all tags)