Last year’s Summer Olympics in London spelled gloom for movie-rental business Redbox and its Bellevue-based corporate parent, Coinstar.
Die-hard sports enthusiasts and casual fans turned on their TVs to watch Gabby Douglas and Michael Phelps win gold, not movies on rent.
To make matters worse, Hollywood studios didn’t dare release new movies during the Olympics, disrupting Redbox’s traffic flow for months to come.
Even so, Redbox’s financial performance was strong enough to put Coinstar at No. 5 on The Seattle Times’ 22nd ranking of publicly traded companies based in the Northwest.
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Coinstar’s revenue rose 19 percent last year to $2.2 billion, while its profit increased 45 percent to $150.2 million.
Redbox, which rents new-release DVDs for $1.20 a day at self-serve kiosks, accounted for most of that revenue growth and all of the profit increase.
Oakbrook Terrace, Ill.-based Redbox saw revenue jump 22 percent to $1.9 billion — nearly 87 percent of Coinstar’s total — while operating income rose 41 percent to $238.7 million.
“There isn’t a better way to get new-release content efficiently and at a great price than through the Redbox kiosk,” Chief Executive Scott Di Valerio said at a May investor conference held by JPMorgan.
Redbox’s Olympics slump was offset by strong demand for pricier Blu-ray discs and video games, as well as the addition of thousands of new kiosks, putting about 70 percent of the U.S. population within a five-minute drive of a machine.
Meanwhile, Coinstar’s namesake coin-counting business turned in 3 percent revenue growth and a 9 percent decline in operating income.
Di Valerio, who recently took the helm after three years as Coinstar’s chief financial officer, now wants to change the corporate name to Outerwall.
The proposed name change, which awaits shareholder approval, reflects Coinstar’s ambition to double in size over the next five years.
“We expect half of the growth to come from Coinstar and Redbox, and the other half to come from new ventures,” Di Valerio said in an interview.
The name Outerwall, he said, “encapsulates what this company has done all along, which is push the limit on automated retail.”
Coinstar last year joined with Verizon to create a new streaming video service, Redbox Instant, and bought NCR’s DVD kiosk business for $100 million.
The company also signed an exclusive, five-year agreement with Starbucks-owned Seattle’s Best Coffee to roll out “Rubi” coffee vending machines in supermarkets, drugstores and discount chains.
The machines, which grind Arabica beans on demand and dispense coffee in 12- and 16-ounce cups for $1 or $1.50, are in seven markets, including Boston, Philadelphia and Seattle, and expected to be in 15 by year’s end.
Other new ventures include machines that sell cosmetics samples, sandwiches and personalized photos.
Stock analyst Eric Wold, of B. Riley & Co., says Coinstar also might make a play for ecoATM. The San Diego startup produces self-serve kiosks where people can trade in their old electronic devices for cash.
Wold says Coinstar has a small ownership stake and could buy ecoATM outright, as it did with Redbox in 2009, when it took full control from a McDonald’s affiliate.
“They definitely need other revenue drivers to get to that doubling,” Wold said of Coinstar’s five-year goal.
Waning movie rentals
Coinstar is diversifying its business amid concerns on Wall Street that movie-disc rentals soon will go the way of the dinosaur.
To some extent, Redbox’s new streaming service with Verizon is meant to ease those concerns.
Redbox Instant, launched in March, offers digital access to older movies on TVs, smartphones and tablets, plus four free physical discs from Redbox, for $8 to $9 a month.
Di Valerio declined to give financial details about the service, saying only that “it’s going as planned.”
Redbox Instant competes with the likes of Netflix, Hulu Plus and Amazon.com, whose $79-a-year Prime shipping program includes video streaming. But Di Valerio said Redbox Instant isn’t intent on becoming No. 1 or No. 2, signaling Coinstar’s conservative approach to expensive licensing deals.
“It’s a very good business at No. 3 or No. 4 for both Verizon and us,” he said. “We’re really focusing on people who love new content at the Redbox kiosk and want a broader streaming opportunity through Redbox Instant.”
Redbox, which accounts for about 45 percent of movie-disc rentals in the U.S., plans no more than 1,000 new kiosks this year.
Instead, Redbox aims to do more business with the kiosks it already has, Di Valerio said. It’s exploring event-ticket sales in Philadelphia and Los Angeles and modifying its kiosks to accommodate an additional 80 discs each, for 710 total.
Wold, who has a “buy” rating on Coinstar stock, says Wall Street is too quick to write off consumer demand for cheap, new-release movie rentals.
Online subscription services tend to offer older movies and episodic TV shows. And cable on-demand services typically charge $5 or $6 for new-release rentals.
“With 50 percent of the country at a household income of $50,000 or less, there’s still a very big market for $1.20-a-night rentals,” Wold said.
A few other things to watch for this year: Coinstar will install more gift-card exchange kiosks and upgrade its coin-counting machines so that customers can add their loose change and paper currency to PayPal accounts.
Redbox also is working on a new customer-loyalty program, its own gift card and a more targeted marketing strategy based on data about individual movie tastes.
Those things, along with Redbox Instant, will “help us smooth out the ups and downs” of Hollywood release schedules, Di Valerio said.
Amy Martinez: 206-464-2923 or email@example.com. On Twitter: @amyemartinez