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Originally published October 28, 2010 at 6:57 PM | Page modified October 29, 2010 at 12:04 PM

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Redbox keeps growing, works on digital partnership

Coinstar said it is talking with several potential partners to introduce a new digital video offering next year, but it did not name the companies or provide details.

Seattle Times business reporter

Movie-rental business Redbox, which is picking up more and more customers as traditional video stores close down, posted a 54 percent increase in its third-quarter revenue Thursday, a big boon for its Bellevue-based corporate parent.

Coinstar said its quarterly profit declined 53 percent to $19.5 million, or 60 cents a share, from $41.4 million, or $1.34, a year ago, when it recorded a one-time gain. Even with a 6-cent loss from discontinued operations, its per-share profit of 60 cents was still more than the 50 cents that analysts expected, according to Bloomberg.

Coinstar also said it's talking with several potential partners to introduce a new digital video offering next year, but it did not name the companies or give details about its discussions.

Redbox offers DVDs for a dollar a day at about 28,500 self-service machines in such places as Wal-Mart Stores and McDonald's restaurants. To expand online, Redbox needs a partner with a large customer base, strong brand, digital content and technology platform, Coinstar said, fueling speculation that it's talking with some big-name players.

"The good news for Coinstar shareholders is that Coinstar is not going to invest in digital content," said Michael Pachter, an analyst at Wedbush Securities in Los Angeles. "I don't think Coinstar can afford to sit at the table and play poker with Netflix, Apple and Amazon. The numbers are too big, but partnering with one of those guys makes a lot of sense."

Pachter said another possible partner is Wal-Mart, which bought online movie service Vudu this year and already works with Coinstar by providing an outlet for its machines.

Chief Executive Paul Davis told analysts in a conference call he still sees plenty of growth in the physical-disc market. What's more, he said, Redbox's extensive physical footprint will help it compete online.

With high-speed Internet access practically a household staple, Amazon, Apple, Netflix and others offer online services that can deliver movies to an array of devices, including Blu-ray players, high-definition TVs and video-game consoles.

"It's a fragmented and crowded market with many large and small players," Davis said. "Technology is evolving quickly, and content costs are on the rise.

"Although there is still a great degree of uncertainty as to which digital business model will ultimately prevail, we believe that one thing is certain," Davis went on. "There will be an important role for Redbox given our strong brand, loyal customers and unparalleled physical distribution capability."

Coinstar's third-quarter DVD revenue rose 54 percent from a year ago to $305.5 million, while total revenue increased 42 percent to $380.2 million, including $74.7 million from its namesake coin-counting machines.

Coinstar, which released its quarterly results after the close of regular trading Thursday, now expects its fourth-quarter profit to range between 79 cents and 85 cents a share, more than the 77 cents that analysts projected.

Coinstar's stock closed up 66 cents to $46.26, then topped $53 in after-hours trading. Shares have ranged between $23.49 and $59.43 in the past 52 weeks.

Amy Martinez: 206-464-2923 or

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