CSTR Coinstar: Bullish on Redbox

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	Josh Warner-Burke
	Baltimore User since Nov 2007	52
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Bullish on Redbox

I am still bullish on Coinstar, owner of the popular Redbox franchise. Recently was speaking to my cousin who is in college about Redbox and she said basically, with pay-per-view movies or even with Netflix there is a bill at the end of the month that may be big, whereas with Redbox you just pay as you go, when you feel like watching a movie. It made me realize why the kiosk model has plenty of room to grow - in her case she was talking about as a young person living at home who doesn't want to owe her parents money for the cable bill, but it's also just anyone who likes to pay as they go or doesn't want a monthly bill on their credit card.

The coin business itself does not contribute a huge percent to their revenues, really this is a play on Redbox, but my general sense is that their expertise in the kiosk space with Coinstar machines has led to their prowess with Redbox machines. From what I have heard it's rare to see a broken Redbox machine.

Downsides: selection is not the best, if you are a movie buff, and there have been a lot of rumblings because of the Blockbuster Express campaign. Those kiosks are only licensed by now bankrupt BLOAQ.PK, in fact they are owned and operated by NCR, an ATM company.

Like with TotalAccess against Netflix, the Blockbuster brand may make a short-lived comeback, but ultimately they are toast against Redbox. People love the Redbox brand, while the Blockbuster brand is sullied.

One potential upside is the introduction of video games for $2 per night, I can see this really taking off. I remember being a kid and hanging out with a friend and renting a game together and just staying up forever playing it. $2 is a great price-point for that.

Confidence 10.

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What People Are Saying...

Ginger Gal said at 1/10/11 9:57 AM Price action was $57.03 -0.55 (-1.0%)

Saw a Redbox at a gas station over the weekend. A good sign they are trying to reach out to various economic markets.

Josh Warner-Burke said at 1/10/11 3:09 PM Price action was $56.47 -1.11 (-1.9%)

Basically Redbox can expand to new kiosk locations in an almost unlimited fashion - because the costs associated with that kiosk are very low, it's not a situation where one location is cannibalizing another. In fact the more ubiquitous the kiosks are, the more value to the customer since they can rent at one and return at another.

Mike Barkett said at 1/10/11 8:12 PM Price action was $56.59 -0.99 (-1.7%)

can you provide a source for that assertion? I would guess each one costs at least several hundred dollars to deploy, not to mention the stock of DVDs it must contain. "unlimited" is a big number. It's an interesting load balancing issue, actually, when you factor for different return locations.

You pointed out in another thread that NCR owns the BB kiosks, but I don't understand how that matters at all. If I lease a car, then the bank owns it, but that doesn't mean the manufacturer tells me how to use it.

Also, I wonder what they do about idiots returning their Redbox DVDs to BB kiosks and vice versa, which I'm sure happens sometimes.

Josh Warner-Burke said at 1/10/11 10:02 PM Price action was $56.59 -0.99 (-1.7%)

I'm purely armchair quarterbacking, so no sources are necessary. My point is that it's a very different equation than with a place like Blockbuster (or Starbucks) where one store can easily cannibalize another store. With kiosks, you need to put them in strategic locations, not just anywhere, but within reason you can expand to a greater level of market saturation and it actually increases the value proposition to the consumer.

Josh Warner-Burke said at 4/7/11 2:17 PM Price action was $48.08 1.01 (+2.1%)

Probably the most bullish CSTR analyst out there, Eric Wold of Merriman Capital, floats the idea that Coinstar might decide to partner with Hulu Plus.

http://www.homemediamagazine.com/redbox/redbox-digital-driver-hulu-23546

An intriguing idea but I'll believe it when I see it. As a long term pick I still like Coinstar, but I've lost a lot of confidence in it and won't touch it short term.

Josh Warner-Burke said at 4/28/11 4:05 PM Price action was $51.12 0.86 (+1.7%)

Amazing timing I have, closed early right before they beat on earnings and the stock goes to 55 (which is still below my initiated price).