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Originally published February 6, 2014 at 5:35 PM | Page modified February 7, 2014 at 6:42 AM

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Redbox DVD rentals slow at Outerwall

While growth at Redbox has slowed considerably in the past year, the Coinstar business has remained steady and even picked up a bit.

Seattle Times business reporter

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For years, the Redbox movie-rental business has trumped Coinstar’s coin-counting machines when it comes to rapid sales growth.

The corporate parent even changed its name from Coinstar to Outerwall last summer, driving home the point that it no longer is just about coin kiosks.

But growth at Redbox has slowed considerably in the past year, while the Coinstar business has remained steady and even picked up a bit.

Bellevue-based Outerwall reported Thursday that its fourth-quarter revenue rose 5.4 percent to $593.7 million. The company posted a quarterly profit of $1.68 a share, on an adjusted basis, compared with $1.01 a year ago.

Redbox, which rents new-release DVDs for $1.20 a day at self-serve kiosks, generated $496.4 million in revenue, up only 1.7 percent.

Coinstar, which exchanges loose change for gift cards, grew by 8.4 percent to $80.7 million, driven by a price hike.

The rest of Outerwall’s revenue came from new ventures, such as its recently acquired ecoATM business, which lets people trade in their old electronic devices for cash.

The stock surged as much as 11 percent in extended trading after Outerwall announced plans to buy back $350 million in shares.

That comes on top of the $195 million in stock repurchased last year and represents about 22 percent of the total outstanding shares, according to Bloomberg News.

Michael Pachter, a research analyst who follows Outerwall for Wedbush Securities, said Wall Street no longer views the company as a growth stock, but rather as a steady income producer.

While the demise of Blockbuster and other DVD-rental chains created a large opportunity for Redbox to attract new customers, those days are over, Pachter said.

“There’s not any more market share to gain. Now, we just have to assume that people are going to rent about the same number of movies a year,” he said. “These guys are valued as a stable cash generator.”

He added that Redbox can maintain a large and loyal customer base, despite the popularity of digital-video services, because it’s a cheaper option for new-release movie rentals.

Outerwall Chief Executive Scott Di Valerio, in a phone interview Thursday, didn’t dispute Pachter’s characterization of the company as mature, though he did note, “I’m not a big one on labels.”

The company expects Redbox’s annual revenue to grow in the 4 to 7 percent range over the next few years, down from its previous growth projection of 8 to 16 percent.

Redbox’s revenue of $2 billion in 2013 represented a 3.4 percent annual increase, down from a 22 percent jump in 2012.

‘It’s not growing as fast as it was, but it’s a $2 billion business, and we’re driving more to the bottom line,” Di Valerio said. “It’s easy to grow revenue. It’s a lot harder to grow both revenue and the bottom line, and that’s what we’ve been doing.”

Also Thursday, Outerwall said Mark Horak, most recently president of the Americas at Warner Bros. Home Entertainment, will join the company as president of Oakbrook Terrace, Ill.-based Redbox on March 17.

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