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Redbox rising, DVD rentals hit new record

Competition from digital entertainment providers may be on the rise, but with an installed base of 43,600 locations, rental activity at Redbox hit a new high in the third quarter and generated traffic for retail partners in the process.

Redbox parent company Outerwall, formerly known as Coinstar, said rentals of products such as DVDs, Blu-ray and video games reached a record level of 199.5 million during the quarter ended September 30, a 13.1% increase from the prior year. Customer traffic, as measured by unique credit and debit cards used to complete transactions, also increase 8% to a record 42 million.

Promotional activity helped drive the increase along with a stronger content slate and strength in Blu-ray and video games, according to the company.

"Outerwall reported a solid finish to the third quarter as the performance in our Redbox business improved substantially moving through the last few weeks of the quarter," Outerwall CEO J. Scott Di Valerio said. "While heightened promotional activity had positively influenced traffic at Redbox through July and into August, we identified pressure on revenue from the level of promotional discounts and higher than expected single-night rentals, and recalibrated our marketing strategies to improve bottom-line performance. We recognize the shift occurring in our Redbox business as we move from primarily a network expansion focus to an emphasis on incremental growth and network optimization, and the importance of driving bottom line and maximizing cash flow in the business.”

Total company third quarter revenues increased 9.3% to $587.4 million compared with $537.6 million for the third quarter of 2012, driven primarily by Redbox segment revenue which increased 7% to $491.7 million.

The company’s Coinstar business grew revenues 2.6% to $79.6 million.

Profits for the quarter more than doubled to $82.7 million, or $2.95 a share, compared with $36.8 million, or $1.14 a share the prior year.

Longer term, Outerwall is eyeing growth with the ecoATM business it acquired in July. The automated kiosks allow customers to receive cash for used electronic devices and are currently in 800 locations, up from 700 at the time the business was acquired. Outerwall plans another 100 ecoATM locations in the fourth quarter and maintains its view that the market can support between 5,000 and 10,000 of the kiosks.