Redbox has acquired entertainment kiosk technology and services from NCR and cut a deal with Verizon designed to emulate Netflix's former DVD-streaming bundle.
On the NCR front, Redbox will buy NCR's entertainment business including kiosks, retailer contracts and DVD inventory in a deal valued up to $100 million. NCR ran the Blockbuster Express business. Coinstar will also buy hardware, software and services from NCR in a deal valued at $25 million. For NCR, Coinstar will be a good showcase for the company's technologies. NCR makes everything from kiosks to self-checkout terminals to voting machines to ATMs.
Separately, Verizon and Coinstar formed a joint venture that will offer streaming services from the telecom giant along with DVD rentals. Verizon will own 65 percent of the venture with Redbox keeping a 35 percent stake.
This streaming service will launch in the second half of 2012. The effort is supposed to cover multiple platforms and give Redbox and avenue to streaming.
Piper Jaffray analyst Michael Olsen said in a research note:
We see this news as a positive for Coinstar and, albeit later than expected, consistent with previous chatter surrounding Redbox's plans to add exposure to digital. The companies plan to announce more details in the coming months, but we know the monthly subscription offering is expected to include new release DVDs from Redbox kiosks in combination with on-demand videos delivered over the internet for an "affordable" monthly fee. We see this as the right strategy for Redbox, giving it exposure to digital while combining it with new release DVDs (similar to what Netflix offered prior to recent plan changes).
Although Redbox's venture with Verizon isn't expected to deliver meaningful sales in 2012, Coinstar doesn't need the cash immediately. The company reported fourth quarter earnings of $31.52 million, or $1 a share, on revenue of $520.45 million. Of that sales tally, Redbox accounted for $445.6 million, up 39.5 percent from a year ago. Coinstar said Redbox's quarter was bolstered by "new kiosk installations, strong performance of new release titles, and consumer acceptance of the price increase."
Coinstar also upped its outlook for the first quarter. Coinstar is projecting first quarter revenue of $530 million to $555 million with core earnings of 76 cents a share to 91 cents a share. Wall Street was looking for earnings of 86 cents a share on revenue of $514.5 million.