by Anthony John Agnello | October 12, 2010 4:38 pm
Coinstar Inc. (NASDAQ: CSTR) is doing an admirable job of keeping physical entertainment media alive and healthy. The company reported impressive second quarter results last July, with revenue of $342.4 million, up 34.9% year-on-year, and it was thanks in no small part to their healthy DVD rental business, Redbox. The Coinstar subsidiary operates automated video rental kiosks across the country. While the film and television industries are watching Internet and streaming services start to replace physical disc sales and rentals on a large scale, Redbox’s DVD rental business has not only stayed strong, it has grown. Revenue from Coinstar’s DVD rental businesses came to $271.9 million, a 43.9% jump over the same period in 2009. While audiences seem to have stopped buying DVDs and going to the rental shop—as Blockbuster‘s (PINK: BLOKA) prolonged collapse has demonstrated—they haven’t stopped renting home video entertainment, and Redbox is competing well with Netflix (NASDAQ: NFLX), the current king of DVD rentals. It’s only natural then that Redbox is expanding their business into video games.
After experimenting with video game rentals in the past eighteen months, Redbox announced this week that they are going to be bringing games to “thousands” of their 24,000 kiosks in the United States. The rental company will also be distributing more of the devoted game rental kiosks that they have placed in test markets. In June 2009, Redbox hired Mark Achler as vice president of video games for the company. Achler launched a test program that saw games introduced to Redbox kiosks in some cities as a test market. Those tests seem to have proven successful. Game rentals will run customers $2 per day and kiosks offering the service can be found in many 7-11 convenience stores throughout the US.
The video game rental business is relatively open area right now. With the dissolution of Blockbuster’s retail business and the shuttering of Hollywood Video’s line of Game Crazy outlets, the remaining national game rental service in the field is the privately owned GameFly service. GameFly uses the same rental-via-mail service that made Netflix so successful. Given Redbox’s reach and past success, the new service stands to make Coinstar shareholders a great deal of money. That’s on top of their already monumental growth in the past twelve months. Coinstar shares hit a lifetime high last spring, hitting $59.43 a share before evening out around $44.24. Their business model may not be sustainable in the long term—physical disc media is doomed one way or another—but they should be able to stay strong for at least a few years.
It remains to be seen if Redbox’s major kiosk competitor, Blockbuster Express, will follow suit and begin offering video game rentals as well. Though they share branding with the ill-fated video rental giant, Blockbuster Express is actually owned by the relatively healthy NCR Corporation (NYSE: NCR). Blockbuster Express has performed well for NCR, though they’ve been hurt by Blockbuster’s filing for bankruptcy last month. Following the bankruptcy filing, NCR immediately announced their plans to expand the Blockbuster Express business by opening new kiosks across the country. Despite doing good business, though, Blockbuster Express’ market share is a fraction of Redbox’s in the rental business.
As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
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