Coinstar Looking Beyond Discs to Leverage Future Kiosk Business
Coinstar will leverage its kiosk installations with recycled electronics businesses as disc rentals begin to decline, CEO Paul Davis said during the Canaccord Genuity Annual Growth Conference webcast Thursday. Citing the upcoming Redbox Instant by Verizon business that gives Redbox both digital and physical disc presence, along with eight new ventures in the works, Davis said the company isn’t “sticking our head in the sand” but is looking at other products that over time will enable the company to “repurpose” Redbox kiosks.
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Coinstar has eight different ventures in the works -- six “organic” and two investments, Davis said -- some of which are “well down the path” and others that are in earlier stages, he said. All the projects are driven by global trends including recycling, food and beverage, entertainment, and health and wellness, he said. Coinstar already launched a coffee business in June with Seattle’s Best Coffee, through automated Rubi kiosks that are going into grocery, drug and mass merchant retail channels, he said.
Most of the new ventures will leverage existing relationships, Davis said. Following Rubi, the ventures closest to rollout include businesses involving used electronics, Davis said. Orango kiosks will offer refurbished, used electronics, he said. “Think about used electronics at great, great prices at the front of large-format supermarkets,” he said. The kiosks will enable supermarkets to compete with retailers they haven’t competed with before and bring new customers in, he said.
Coinstar also has an investment in Eco ATM, a kiosk that enables consumers to recycle cell phones in exchange for cash or store value, he said. Consumers type in information and then place the old cellphone on a platform within the kiosk where it’s photographed by a built-in camera from the top, bottom and sides, Davis said. The kiosk compares the used model to its 4,000-model cellphone database and determines make, model and condition. Phones are “pre-sold” to aggregators that compete daily on prices, he said, and set prices -- determined by condition, among other things -- are displayed to consumers, who can decide if they want cash or store credit “on the spot,” he said. A robotic arm plugs a power cord into the phone to turn it on, sees if it’s working and asks consumers if they want their data erased, he said. The phones then are recycled “mostly to third-world countries,” he said.
The physical entertainment rental business is $5.8 billion-$6.3 billion annually, Davis said, saying there will likely begin to be a decline of about a 5 percent decrease in physical rentals per year. Even if the $5.5 billion-$6 billion goes to $4.5 billion-$5 billion over the next 5 years, the company is in a “great position to continue to grow our share” of that market, Davis said. “We think the tail on physical [disc rental] is going to be much much longer than most people believe,” he said. Citing the music industry, he said, “Look at how long it took before digital actually overtook physical, and it was much much longer than most people had anticipated.”
On whether studios will begin a “purposeful shift” from DVD to Blu-ray, Davis deferred to the studios but said Blu-ray continues to grow as a percentage of rental mix. He cited the growing number of Blu-ray players in U.S. households along with “how affordable or sometimes free Blu-ray players are” as part of TV bundles at retail. Penetration is “getting well north of 50 percent and continues to grow,” he said. For a lot of Redbox customers, the delta of 30 cents between a $1.20 DVD and a $1.50 Blu-ray disc “matters,” so Redbox doesn’t buy Blu-ray “for every single title that comes out,” he said. “We're pretty thoughtful about what we'll buy a Blu-ray copy on,” he said. Blu-ray is “nice upside for us,” he said, as it continues to grow as a percentage of business.
Regarding swaps of blue NCR-built Blockbuster Express kiosks with Redbox units following Coinstar’s purchase in June, Davis said there will be 2,500-2,900 kiosk swaps between now and the end of 2012. Coinstar is pulling out an additional 900-1,000 blue kiosks that are underperforming, leaving 2,500 blue kiosks in place at year end, he said. The swaps are mostly being done at Publix and Safeway supermarkets, which are new accounts for Coinstar, Davis said, adding that as the relationships grow Coinstar hopes to cross-sell its other products and services into those stores.
Redbox Instant by Verizon, the subscription-based unlimited streaming service announced by the two companies earlier this year, is on course, Davis said. The service remains in alpha testing and will go to broader beta testing before it is expected to go national by year end, Davis said.