Don’t sleep on Redbox, analyst says; upside is possible during second half of ’13
People are underestimating DVD kiosk-rental provider Redbox, according to B. Riley Caris analyst Eric Wold.
“What is lost in most arguments against Redbox is that physical rentals are still a $5.3B market – of which Redbox currently only has [an approximate] 35% share,” Wold said in a research note on Thursday.
“With an entrenched consumer base that still prefers physical rentals to digital and diminishing competition in this channel, we believe that a stronger copy-depth effort along with a ramp in legacy Blockbuster kiosk locations should drive improving trends into 2H13.”
There is, of course, a significant part of the video rental market that hasn’t signed on to streaming. It isn’t just people who are on the wrong side of the “digital divide,” or elderly people who are behind the curve.
There are people who had a bad encounter with streaming, due to buffering problems that ruined the experience. Others are just perfectly satisfied with DVDs and Blu-ray discs, and find them convenient enough. Some people enjoy the extras that often come with discs, including audio commentaries, “making-of” documentaries, biographical shows about one or more of the stars, and more. I fit into this last category. To be sure, an older actor or director might barely remember having done the movie or TV show he’s supposed to comment upon, and either be silent for much of the track or ramble on about things that have nothing to do with it. But a good commentary track can be fascinating, adding considerably to an overall appreciation of the content.
Video distributors are still profitably able to put out deluxe box sets containing an entire television-series run on DVD and Blu-ray. Large studios do it, but it’s also being done by smaller, independent outfits that license content. Bob Emmer, co-founder of the independent DVD distributor Shout! Factory, discussed the phenomenon with me last fall.
Meanwhile, Redbox has of course launched its own streaming offering, Redbox Instant, in a joint venture with Verizon Communications Inc. Wold expects to get more clarity on the product during an analyst meeting Feb. 27, “including 1) overall capital contributions to the JV (we expect it to be well less than $150M); 2) plans for additional content and device connectivity; and 3) expectations for reaching profitability (which we project is attainable within 12-18 months after launch).”
Wold has a buy rating on Coinstar, with an $80 price target. The stock was down marginally at $53.72 Thursday morning.