A couple of weeks ago, I griped that Verizon and Redbox failed to provide any details when announcing their alliance to market videos. The good news is that we now know more about the strategy at Coinstar, the company that owns Redbox. The bad news is we still don't have any hard numbers.
Nick Wingfield at The New York Times offered us a deeper look into the parent company over the holiday weekend. As it turns out, Coinstar is a pretty good example of how an agile company shifts when it perceives a threat to its core revenue stream, but may come up short in predictive analytics.
Depending on how some market testing goes, Coinstar's future may depend on machines that brew coffee, recycle mobile phones, and sell refurbished tech gadgets, among other things. But before we look at where Coinstar is going, let's look at where it's been.
The company got its start in the early 90s when Stanford grad Jens Molbak realized he wasn't the only one tired of counting his spare change. He thought a machine could do it better, and Coinstar was born. Today, the company has about 20,000 machines in supermarkets and other retail chains that turn your spare change into debit cards good at participating retailers or -- after Coinstar takes its cut -- into cold cash.
The big break for Coinstar came with Redbox, which rents out DVDs for $1.20 a night, a rate that has been known to force the closure of many competing video stores and headaches for the studios that own the films. The rate is so low that some entertainment industry execs believe it has contributed to the recent decline in DVD sales. There could be some truth in that; as reported earlier this month, the chain has rented 1.5 billion DVDs so far through its 35,400 kiosks in 29,000 retail stores.
However, video rentals are also on the downturn as more consumers turn toward streaming videos into their living rooms. That could be bad news for Coinstar because Redbox rentals generated 85 percent of its $1.85 billion in sales last year. Coinstar CEO Paul Davis sees the world is changing, and he knows Coinstar must change, too. Hence, Redbox has taken a 35 percent stake in its still-murky alliance with Verizon, which has the ability to stream movies.
The problem is Hollywood studios aren't thrilled with Redbox. Nobody knows what movies the studios will offer to the Verizon-Redbox alliance, but probably not many new ones. And the uncertainty is making it difficult to project revenue for Coinstar's video operations.
Ecology and coffee
So, Davis is trying to take the vending machine business in a direction that may sound familiar to baby boomers. He's planning to sell coffee. Not the battery acid that flowed from the 1960s-era vending machines, but gourmet coffee created through an alliance with Starbucks and sold under the Seattle's Best Coffee brand.
He's also looking at giving consumers a place to trade in their old cellphones and pocket gadgets for cash though a machine called ecoATM. According to Wingfield's report, those machines would use cameras to gauge the value of the used devices. If they're in good condition, they may end up in the hands of a consumer in a developing country instead of the local landfill.
Speaking of recycled electronics, Davis is also looking at a machine, aptly named Gizmo, that would sell refurbished game consoles, iPads, and other tech devices to US consumers at about half the price of new gear.
What else? Well, Davis says the company has about eight or nine kiosk ideas in various stages of development, all through an initiative it started about 18 months ago. "What we try to do is plant a lot of seeds," he told Wingfield. "We know the math says only about half are going to work."
That may sound promising, but Wall Street analysts will probably insist on more than Davis's see-what-sticks business plan.
Do people really want to buy coffee from vending machines? Or a refurbished iPhone? Will the video-steaming venture with Verizon pan out, and will consumers keep renting videos from Redbox in the meantime? Is it really profitable to pay people for their used cellphones and then retrofit them for resale on another continent?
We'll give Davis credit for responding to an imminent threat against his company's golden goose. But we still have to question just how all this is going to pan out. Coinstar has a lot of market testing going on, but it's still not sharing any details on projected sales. We can only hope the company will finally come up with some hard numbers to plug into a predictive analytics model.
Otherwise, we fear, Coinstar may need to make a vending machine that recycles vending machines.