Redbox Instant

Coinstar cashes in on Redbox kiosks

December 4, 2012: 5:00 AM ET

Coinstar has been taking on Blockbuster stores with its Redbox kiosks.  Now it's taking aim at Netflix on the Web.

By Richard McGill Murphy, contributor

One of Redbox's 42,400 DVD and game kiosks

One of Redbox's 42,400 DVD and game kiosks

FORTUNE -- Not unlike the old automats in New York City, the nifty machines that Coinstar (CSTR) operates satisfy consumer desires at the press of a button. Launched in 1991 by a Stanford grad student who had tired of accumulating coins in a jar on his dresser, Coinstar now generates about 85% of its revenue from the Redbox chain of DVD- and game-rental kiosks. That business has profited mightily from the swift decline of video rental stores. According to CEO Paul Davis, Coinstar will open between 8,000 and 9,000 new Redbox kiosks this year, or roughly one every hour. "Our rentals are priced below brick-and-mortar video stores, and you can return them anywhere," he says.

how_teens_rent_moviesFastest-Growing Rank: 15

HQ: Bellevue, Wash.

Employees: 2,700

The business: Coinstar operates the Redbox chain of DVD- and videogame-rental kiosks, as well as machines for sorting change.

Risk/reward: As more people turn to downloading and streaming for their entertainment needs, Coinstar faces a threat to its core business of renting physical DVDs and games. Early this year investors cheered when the company announced Redbox Instant, a joint venture with Verizon (VZ) that will soon provide digital delivery and videodiscs for a single monthly subscription. "It's an attempt to capture some of the magic that Netflix (NFLX) lost last year by splitting its service," says Piper Jaffray analyst Mike Olson. CEO Paul Davis is also diversifying, inking a deal with Starbucks (SBUX) to operate Seattle's Best coffee kiosks in offices and other high-traffic locations. For at least the next few years, Coinstar will probably generate the bulk of its revenue from DVDs. And don't count out the humble kiosks. They outlasted once-mighty Blockbuster. They just might survive streaming.

coinstar_redbox_graphs

This story is from the December 3, 2012 issue of Fortune.

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