Coinstar Builds Apple Relationship as It Seeks Online Partner

Coinstar Inc., owner of the Redbox DVD rental kiosks, is expanding ties with Apple Inc. as it searches for a partner to build an online viewing service.

The company added 1.8 million Internet users in the second quarter, including social-media sites and an iPhone application that lets customers reserve DVDs at kiosks, Chief Executive Officer Paul Davis said today in an interview. Coinstar also offers an iTunes coupon through its coin-counting machines.

“We have a longstanding relationship with Apple,” Davis, 53, said at the Nasdaq in New York. “I would not conclude we are or are not doing a streaming deal with them.”

The company says it needs a partner to deliver movies to homes and portable devices to compete with Netflix Inc.’s online service. Netflix streams more than 20,000 titles as part of its subscription service. Davis downplayed the likelihood Sonic Solutions Inc., supplier of online movies services to Sears Holdings Corp. and Best Buy Co. would be that partner.

“We are exploring multiple opportunities,” Davis said. “It will likely be a partnership and there are other opportunities other than the reported partnership with Sonic Solutions.”

Coinstar, based in Bellevue, Washington, is considering digital delivery as a way to expand its library beyond the 200 or so DVD titles kiosks hold, Redbox President Mitch Lowe said in a June interview. The company will outline its digital strategy next month on its quarterly conference call, he said.

Source: RedBox via Bloomberg

A Redbox Automated Retail LLC kiosk. Close

A Redbox Automated Retail LLC kiosk.

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Open
Source: RedBox via Bloomberg

A Redbox Automated Retail LLC kiosk.

Nils Erdmann, a spokesman for Novato, California-based Sonic Solutions, didn’t respond to an e-mail or phone call seeking comment.

Focus on Film

A larger online library would help Redbox attract customers who turn to Netflix for older movies, Lowe said in June.

Jason Roth, a spokesman for Cupertino, California-based Apple, said the company had no immediate comment.

Coinstar agreed last month to sell its money-transfer business and in May divested the electronic-payment businesses to focus on Redbox and the coin-counting machines where customers can exchange coins for currency.

Through Redbox, Coinstar operates DVD kiosks at 26,900 locations in the U.S., including grocery stores, drug stores and McDonald’s Corp. restaurants. The unit accounted for $271.9 million, or 79 percent, of the company’s $342 million in second- quarter revenue, the company said in a statement in July.

Blockbuster Woes

Coinstar is likely to pick up more customers at its kiosks as Blockbuster Inc., struggling with $920.4 million in debt, closes stores and considers a Chapter 11 bankruptcy filing. On Aug. 13, the Dallas-based retailer reported a wider second- quarter loss and said it received a six-week reprieve from creditors. Coinstar has kiosks within five minutes’ driving time of most Blockbuster locations, Davis said.

“Their users would easily migrate to Redbox,” Davis said.

Coinstar acquired Redbox in 2009 from McDonald’s Ventures LLC, a unit created by the hamburger chain to examine ways to attract more customers.

Coinstar gained $1.19, or 2.8 percent, to $44.37 at 4 p.m. New York time in Nasdaq Stock Market trading. The stock has risen 60 percent this year.

To contact the reporter on this story: Serena Saitto in New York at ssaitto@bloomberg.net; Michael White in Los Angeles at mwhite8@bloomberg.net.

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