Expansion Planned Of Redbox Dual-Kiosk Locations, Blu-ray, Videogames

Redbox will offer a second DVD rental kiosk at a growing number of its “high-volume locations,” and expand its Blu-ray and videogame offerings this year, Paul Davis, CEO of parent company Coinstar, said in an earnings call. Strong results in the Redbox business helped the company report stronger revenue and earnings for Q1 ended March 31. Revenue increased 46.6 percent from Q1 last year to $350.1 million, while profit widened to $6.4 million, 21 cents per share, from $2 million, 7 cents.

There are now more than 2,400 dual-kiosk locations and the company “plans on adding another 1,200 this year,” said Davis. Consumers and retailers like having the second kiosk because it cuts down on wait times and enables “improved customer service,” he said. The second kiosk also gives Redbox “the ability to deepen our content in the machines by adding Blu-ray titles, catalog titles and games,” he said. The dual kiosk locations “pay back” the company’s capital expenditures “in two-thirds the time of a new location,” he said.

Redbox is also “moving forward with our Blu-ray testing and roll out plans,” Davis said. The company is still “evaluating our pricing model and title configuration,” he said. The company is also “planning to expand the testing of videogames to an additional market this quarter,” he said.

The company saw “outstanding growth” in the Redbox business in Q1, Davis said. It rolled out about 2,400 Redbox kiosks in Q1, “expanding our national footprint” in the U.S. to about 24,800 kiosks in almost 21,600 locations, he said. “More than 9 million DVDs were rented per week at Redbox kiosks” in Q1, he said. The company’s share of the DVD rental market grew to 23 percent in Q1 from 15.7 percent a year ago, he said, citing NPD data. Nearly all the growth came from bricks-and-mortar retail locations, he said, estimating there are 3-4 Redbox kiosks now located within 4-5 miles of an existing or recently closed Blockbuster store.

The company’s marketing efforts are also “driving interest among consumers,” Davis said. “In March alone, we experienced our highest month” of online traffic, with 6.9 million “unique visitors to our site,” he said. Its iPhone application continued to be in demand and as of about two weeks ago, there were about 1.7 million downloads, he said.

Standing to significantly help Redbox growth are the recent distribution deals it signed with Warner, Fox and Universal. Redbox sued all three studios after they crafted new strategies requiring it to observe about a one-month window before making new releases available. Redbox was forced to engage in a costly “workaround” strategy to get new releases from those studios, it had said. But Redbox agreed to observe a 28-day window before making new releases available as part of the recent deals that marked an end to court battles between it and the studios. “We have now stabilized our supply chain and eliminated the workarounds we had in place,” Davis said.

Redbox added another retail customer last week, saying it would immediately start installing DVD rental kiosks in the more than 100 Schnucks locations across Missouri, Illinois, Indiana, Wisconsin, Iowa, Tennessee and Mississippi. The rollout is expected to be complete in June, Redbox said. Schnucks is replacing the NCR/Blockbuster Express rental kiosks that have been at its stores, Davis said.

Redbox is also expanding the number of rental kiosks it has at U.S. Naval installations in the U.S. as part of a deal with the Navy Exchange Service Command (NEXCOM), Coinstar said. Redbox is the exclusive supplier of DVD rental kiosks to NEXCOM and now has more than 66 kiosks on 47 of the 56 Navy installations in the continental U.S., Coinstar said. The company expects to install about 20 additional kiosks at NEXCOM bases throughout 2010, including Pearl Harbor, Hawaii, this summer, Coinstar said.

But Chief Financial Officer Scott Di Valerio said the company is ending its DVDXpress kiosk business. The 830 or so DVDXpress-branded kiosks it has in the U.S. and the U.K. will be taken out of service by the end of the year, he said.

Coinstar also said it teamed with Amazon to allow consumers to exchange coins at Coinstar Centers, with no transaction fee, for a gift card redeemable for Amazon MP3 music downloads or “millions of other items” at Amazon.com. To kick off the new service, the companies introduced a promotion in which, through May 31, consumers can get a bonus code for Amazon MP3 music downloads when they redeem Amazon MP3-branded gift cards from Coinstar.