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Redbox Second-Quarter Operating Profit Rises

Revenue for the DVD rental kiosk operator rose 33.8 percent for the latest period to nearly $364 million, at the lower end of company projections, as management says it is looking to attract Netflix users upset with a recent price hike.

NEW YORK – Coinstar on Thursday reported second-quarter operating profit from its Redbox DVD rental kiosk business that rose sharply amid 33.8 percent revenue growth.

Asked if Redbox would benefit from Netflix's recent announcement of a price hike, Coinstar CEO Paul Davis said his firm is trying to roll out the welcome mat and is using social media messages to reach consumers who may consider dropping Netflix. But the company will only see how much it can profit once the price increase kicks in, they added, pointing out an overlap of users of the two companies' services. About 20 percent of Netflix subscribers also use Redbox, and about 30 percent of Redbox customers also use Netflix.

Redbox operating income before depreciation, amortization and other, factors, including share-based compensation expense, amounted to $74.0 million, compared with $37.2 million a year earlier. After accounting for these factors, operating profit of $46.7 million multiplied from $13.3 million.
 
Redbox revenue of $363.9 million, up from $271.9 million in the year-ago period, reflected new kiosk installations and growth in same store sales, but came in at the lower end of management expectations, the company said.

Coinstar overall posted a quarterly profit of $26.7 million, up from $13.4 million, exceeding Wall Street expectations. Revenue came in  slightly below estimates at $435.2 million, a figure that showed that Redbox accounts for a vast majority of the firm's financials.

For the first six months of the year, Redbox operating profit after depreciation and other factors grew from $37.5 million to $70.4 million. Revenue rose from $534.9 million to $726.2 million.
 
Davis said that his team is “excited” about the continued market share gains of Redbox. “The video game rollout has started nicely as we've been able to broaden our demographic reach and provide consumers access to games at affordable prices."

On an earnings conference call, management said it continues to study and better understand consumers' Blu-ray rental behavior.
 
Last week, Redbox owner Coinstar preannounced key financial results for the whole company and said that president Mitch Lowe has resigned "to pursue entrepreneurial and other interests," but will serve in his role until a successor is named. Coinstar also said it has started an external search for a replacement.

"We won’t miss a beat," said Davis on Thursday's call without providing guidance for how long the CEO search could take.
 
Also on Thursday, Redbox said that following last month's formal launch of video game rentals, it will expand game rentals to approximately 5,000 additional kiosks beginning next month. That will make games available at about 27,000 kiosks.

Management predicted that video game revenue would account for about 7 percent-8 percent of total Redbox revenue by year-end.

"Whether customers are playing a new game or genre, trying a game before they buy it or simply entertaining friends and family, they're embracing the availability of games at Redbox," said Joel Resnik, vp of video games at Redbox.

Redbox said it recently rented its 4 millionth video game since the company began testing that service in 2009. It also reached its 1.5 billionth movie rental last month.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai