Market Watch

Redbox Revenue Impacted by Windowing



The introduction of a 28 day window on some studios' new release titles has negatively impacted Redbox's DVD rental kiosk business according to Coinstar's second quarter 2010 results. The second quarter 2010 is the first full quarter in which the 28 day window on new release titles from Universal, Warner and Fox has been in force. In that period the US rental kiosk market leader continued to grow its kiosk base; reaching 26,900 (operating from around 23,000 locations) up 8.5 per cent on the previous quarter. Quarterly revenues grew 3.3 percent but, critically, operating profit for Redbox declined 12.1 per cent compared to the first quarter 2010 (although the company's expansion meant it was up 62 per cent on second quarter 2009). Coinstar also attributed the poor performance to Movie Gallery's liquidation sales and a 'weak' second quarter release slate, and stated that it expects earnings to rebound in the third quarter.

Elsewhere, Time Warner cited windowing of new-release video titles for rental kiosks as the reason for positive trends in digital retail and transactional video-on-demand in its second quarter earnings report.

Analysis
The reduction in average kiosk revenue and subsequently profitability was inevitable following the introduction of windowing by three of the six major studios. However, the stated aim of the strategy-to increase physical retail sales-is notably absent from Warner's list of its achievements. Indeed, Paramount, which still supplies kiosks day and date with rental stores, has stressed that the benefits from its revenue sharing deal with Redbox far outweigh any loss to physical sales. According to Redbox its kiosks account for 25 per cent of physical rentals in the US; in preventing the early physical rental of new releases through dollar-a-night kiosks studios have made rental less convenient and more expensive for some consumers. According to Time Warner, this has driven a significant number to seek forms of digital delivery. Given the absence of a ubiquitous, low cost, fool proof digital solution there is also a risk that some would-be renters may instead have turned to illegal methods of digital distribution.
 
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