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 more than 80% of Outerwall's sales. Redbox operates some 43,680 DVD rental kiosks located at supermarkets, malls, big-box retailers, drug and convenience stores, and restaurants across North America. The fast-growing company changed its name to Outerwall in 2013 to reflect its evolution from coin counting to an operator of various automated retail businesses.
In addition to its nearly 44,000 Redbox kiosks, Outerwall owns and operates more than 21,300 Coinstar kiosks, which count customer's loose change and charge a small fee for the transaction.
Beyond DVD rentals and coin-counting machines, Outerwall's other automated retail concepts include: ecoATM (acquired in 2013), an automated kiosk the pays cash for used electronic devices, including mobile phones, MP3 players, and tablets.
While the US accounts for more than 95% of Outerwall's sales, its retail kiosks are also found inside and outside stores in Canada, Puerto Rico, the UK, and Ireland. Its Redbox subsidiary has offices in Oakbrook Terrace, Illinois, while its ecoATM business has operating facilities in San Diego, California.
Sales and Marketing
Walgreen and Wal-Mart Stores each account for about 15% of Outerwall's sales, while grocery giant Kroger represents about 10% of sales.
Outerwall spent $13.5 million on advertising in national and international markets in 2014, down from the $13.7 million spent in 2013, and the same as it spent in 2012.
Outerwall's sales and profits have risen steadily in recent years. Indeed, since acquiring Redbox in 2008, the company's sales have more than doubled from about $1.1 billion in 2009 to $2.3 billion in 2014.
The company's sales dipped slightly in 2014, mostly from a lack of strong movie releases for the year, and because of a lighter slate of video game releases as video game companies began shifting to next-generation console platforms. Coinstar revenue grew by 5% mostly thanks to higher same store sales with pricing increases, and thanks to a larger kiosk base and higher pricing in the UK. In 2013, the company had seen record revenue from a $65.8 million increase from the Redbox business due to new kiosk installations, the acquisition of ecoATM (which added $31.5 million in new sales), and $9.5 million in sales growth from its Coinstar kiosks.
Profit reversed course after years of healthy growth, with net income falling by 39% to $106.62 million in 2014, mostly as the company incurred higher costs associated with the scaling up of its relatively-new ecoATM business. Operations provided $338.3 million, or 3% more cash than in 2013, as it used less cash toward prepaid expenses and in building its content library.
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.
To this end, Outerwall has grown primarily through acquisitions in recent years. In 2013, it purchased ecoATM to expand into the electronics kiosk market -- and boosted the eco-ATM kiosk base by another 900 machines in 2014. Still, its acquisitions have not yet been nearly as successful as Redbox, which now accounts for more than 80% of the company's total revenue.
Focusing on its top-earning divisions, the company has been exiting less profitable enterprises. 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 Coffe, Crisp Market, and Star Studio. After extending its Redbox Tickets pilot project from Philadelphia to Los Angeles, the company shelved it as well.
Outerwall 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 multi-year 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.
Mergers and Acquisitions
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.