Redbox revenue more than doubles, testing new pricing models

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$15 DVDs may be fading, but $1 DVDs are booming.

DVD kiosk company Redbox, which rents movies for $1 per night, saw revenue grow 110% in the second quarter to $188.9 million, parent company Coinstar Inc. reported today.

Its booming growth comes not only during a recession but a tough time for DVD sales, which fell 13.5% in the first half of the year, according to the Digital Entertainment Group, an industry trade organization.


DVD rentals grew 8% at the same time, however, driven primarily by Redbox and subscription service Netflix, which reported that its revenue grew 21% last quarter.

Redbox wasn’t entirely immune from the decline in DVD sales, however. Coinstar said that the business’ operating income rose 61%. The primary reason for significant differential from revenue growth was falling prices for the discs Redbox sells after it is finished renting them.

The company continues to rapidly expand its number of kiosks, which reached 17,900 in the second quarter, up from 9,600 a year ago. On Monday it announced an agreement to install the machines in Kroger supermarkets as part of its plan to have between 21,000 and 22,000 by the end of 2009.

On a conference call with analysts, Coinstar CEO Paul Davis extended an olive branch to Hollywood studios, many of which are wary of the company’s effect on DVD sales, which carry significantly higher profit margins than nightly rentals. Though Sony Pictures recently signed a deal with Redbox, Universal Pictures is amid a lawsuit with the company and other studios are hoping to only provide their movies to it well after they go on sale.

‘We clearly understand the importance of fostering collaborative relationships with studios,’ Davis said. ‘We plan on testing different pricing models all the while preserving our core value proposition.’

If Redbox were to find ways to generate more revenue, particularly for new releases, that would likely alleviate the concerns of many studios.

In addition, Davis said that Redbox is amid testing video game rentals, both in dedicated kiosks and ones that also carry DVDs.

-- Ben Fritz