Outerwall (formerly Coinstar) takes its name from the previously underutilized "fourth wall" area between the cash registers and the front door in retail stores. Once known for its coin-counting Coinstar kiosks, the company's Redbox kiosk business, which vends DVD and Blu-Ray rentals, now generates 80% of Outerwall's total sales. Redbox operates some 40,480 DVD rental kiosks located at supermarkets, malls, big-box retailers, drug and convenience stores, and restaurants across North America. Outerwall also owns online mobile phone and tablet trader Gazelle. The kiosk provider changed its name to Outerwall in 2013 to reflect its evolution from coin counting to an operator of various automated retail businesses. In late 2016 funds affiliated with
Apollo Global Management
acquired Outerwall in a transaction valued at $1.6 billion.
In addition to Outerwall's 40,480 Redbox kiosks (which contributed 80% to its total sales during 2015), Outerwall owns and operates more than 20,900 Coinstar kiosks (15% of sales), which count customer's loose change and charge a small fee for the transaction. Outerwall's ecoATM (5% of sales) is an automated kiosk that pays cash for used electronic devices, including mobile phones, MP3 players, and tablets.
While the US accounted for 98% of Outerwall's sales in 2015, its retail kiosks are also found inside and outside stores in Canada, Ireland, Puerto Rico, and the UK. Its Redbox subsidiary has offices in Oakbrook Terrace, Illinois, while its ecoATM business has operating facilities in San Diego.
Sales and Marketing
accounted for 13% and 17%, respectively, of Outerwall's total sales during 2015, while grocery giant
represented another 10%.
Outerwall's kiosks are mostly located in high-traffic areas such as supermarkets, drug stores, mass merchants, convenience stores, financial institutions, malls, and restaurants. The company spent $15.2 million on advertising in national and international markets in 2015, up from the $13.5 million and $13.7 million spent in 2014 and 2013, respectively.
Outerwall's sales and profits have been declining in recent years as its Redbox kiosks have saturated the US market and as movies and video games haven't been as popular and have suffered from lighter release schedules. That said, since acquiring Redbox in 2008, the company's sales have more than doubled from about $1.1 billion in 2009 to $2.2 billion in 2015.
The company's sales dipped 4% to $2.19 billion during 2015 as it removed underperforming kiosks and suffered a 5.8% decline in same-store sales from a lack of consumer demand for physical mediums, weaker movie releases and volumes, higher rental prices, and a lighter slate of video game releases as video game companies began shifting to next-generation console platforms. On the bright side, Coinstar revenue grew by 1% as it installed more exchange kiosks, while ecoATM sales jumped 20% with the 2015 acquisition of Gazelle and with a 62% uptick in the number of devices sold.
Revenue declines and ecoATM goodwill impairment charges in 2015 caused Outerwall's net income to plunge 58% to $44.3 million. The company's operating cash levels tumbled 4% to $326.1 million mostly due to the fall in cash-based earnings.
Outerwall has expanded and diversified its business lines mostly through acquisitions in recent years. In late 2015, for example, it bought online mobile phone and tablet merchant Gazelle to buoy its ecoATM business' profitability and growth potential. In 2013 it purchased ecoATM to expand into the electronics kiosk market -- and boosted the ecoATM kiosk base by another 900 machines in 2014. Still, its acquisitions have not yet been nearly as successful as Redbox, which now accounts for 80% of the company's total revenue.
The kiosk provider works hard to keep customers coming back and ensure a consistent flow of good content to its machines. In 2014 the company launched Redbox Play Pass, a new loyalty program the company hoped would drive customer engagement and rental frequency. It also recently announced a contract extension with Paramount Home Entertainment to keep Paramount movies in its machines through the end of 2015. To speed new content to its kiosks, in 2014 Redbox signed a multiyear distribution deal with
Lions Gate Entertainment
to bring Blu-ray and DVD titles to its kiosks on the day of their retail home entertainment release.
Since its purchase of Redbox in 2008, Outerwall has rapidly evolved from a one-product business -- offering just coin-counting services -- to one that offers a variety of products and services. Indeed, its tiny New Ventures segment is a laboratory of sorts for the development and acquisition of new automated retail concepts. As of 2015 the company looks for new kiosk concepts in a handful of consumer sectors, including: Entertainment, Money, Electronics, Beauty & Consumer Packaged Goods, and Health.
Focusing on its top-earning divisions, the company has been exiting less profitable enterprises. In 2015 it pulled its Redbox operations out of Canada after witnessing weak sales in the region. In late 2014 its Redbox division exited its Redbox Instant joint venture with Verizon Ventures due to disappointing subscriber base numbers for some $16.8 million to pay outstanding dues. In 2013 the company abandoned several concepts in its New Ventures segment, including Rubi Coffee, Crisp Market, and Star Studio. After extending its Redbox Tickets pilot project from Philadelphia to Los Angeles, the company shelved it as well.
Mergers and Acquisitions
In November 2015 Outerwall bought Gazelle -- an online purchaser and seller of used mobile phones, computers, and tablets for consumers -- for $18 million. The acquisition was intended to drive ecoATM to profitability while boosting margin and revenue growth potential.
In July 2013 Outerwall acquired ecoATM, an automated self-serve kiosk system to purchase used mobile phones, tablets, and MP3 players for cash, for $350 million. Outerwall already owned 23% of ecoATM at the time of the purchase.
Not all of Outerwall's ventures have been successful. Previously, in 2011 Coinstar sold its money-transfer business, which served the US and Latin America, to California-based financial serves firm Sigue. The deal, valued at about $40 million, allowed Coinstar to concentrate on its automated retail strategy (i.e., coin counting and video rental). Indeed, Coinstar also sold off some 900 DVDXpress kiosks (400 of which were active) in 2010, as well as DVD discs that were in the kiosks, as it had deemed the business as unprofitable.