Shares of Redbox parent Coinstar hammered on earnings warning

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Video-rental chain Blockbuster Inc. has been running ads criticizing its competitors for making consumers wait 28 days to rent new movies.

In the case of Redbox, it turns out consumers may agree.

Shares in Coinstar Inc., the parent company of $1-per-night DVD rental kiosk company Redbox, plummeted 26% on Friday after it disclosed that results for the fourth quarter ended Dec. 31 would be lower than expected. The reason: The company recently signed deals with several studios agreeing not to rent new movies until they had been on sale for four weeks.

‘This was Redbox’s first holiday season with 28-day delayed titles, and we underestimated the impact that the delay would have on demand during the fourth quarter,’ Coinstar Chief Executive Paul Davis said in a statement.

He also said that demand for high-definition Blu-ray discs, which Redbox has been offering for $1.50-per-night, have been lower than expected.


Redbox agreed to 28-day delays with three of Hollywood’s biggest studios: Warner Bros., 20th Century Fox and Universal Pictures, all of which hope the so-called ‘window’ will push consumers to purchase movies or pay a premium to rent them earlier from Blockbuster or through online services. That meant Redbox users who wanted DVDs like ‘Inception,’ ‘Despicable Me,’ and ‘Knight & Day’ would be forced to wait nearly a month in exchange for paying a lower rental fee.

Analysts are divided over whether Redbox’s disappointing results represented a temporary bump in the road or longer-term structural issues.

‘In our view, Thursday’s preannouncement is more a reflection of overly aggressive guidance than underlying weakness,’ Wedbush Morgan analyst Michael Pachter wrote in a research note.

But Needham analyst Charlie Wolf said Redbox could also be a victim of consumers’ rapid shift to the Internet for watching movies.

‘Logistical snafus were part of the problem, but this raises the issue of whether there is a faster change in the marketplace than expected from physical rentals to digital distribution,’ he said.

Redbox competitor Netflix also agreed to 28-day new release delays with four studios, but consumers have always used it less for new releases than Redbox. In addition, Netflix already had a popular online streaming option. Redbox has announced it will partner with another company to offer movies via the Internet, but has yet to detail launch plans.

Coinstar will release its fourth quarter financial results on Feb. 3. Revenue is expected to be about $391 million, compared with a previous company estimate of between $415 million and $440 million.

Davis noted that despite the lower-than-expected growth, Redbox revenue would still be up 38% from the same period in 2009. Discounting the addition of new kiosks, he said sales were up 12.5%.

Coinstar stock was trading at $42.17 on Friday afternoon.

For the record, 7:20 p.m. Jan. 14: An earlier headline said, ‘Redbox shares hammered after signaling that results to be lower than expected.’ Redbox is not publicly traded; it was shares of its parent company, Coinstar Inc., that declined.

-- Ben Fritz