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Coinstar Beats Earnings Forecast on Redbox Growth

Coinstarearnings blew past expectations, sending the stock soaring after-hours. The company reported earnings per share of $1 on $520 million in revenue. Wall Street had expected just 65 cents a share on $498 million in revenue.

Coinstar
Source: Coinstar.com
Coinstar

The big driver was the company’s biggest division, DVD Rental service Redbox, which showed 39.5 percent revenue growth. Perhaps more important, the company’s guidance for the current quarter was better than expected. The company is continuing to double down on entertainment — it is buying the assets of NCR’s entertainment business.

These better-than-expected results come on the heels of Coinstar announcing its partnering with Verizon to launch an online content service to go head to head with Netflix .

The joint venture will be a subscription service that offers streaming and downloads, and can be partnered with Redbox’s DVD rentals. The new business will be 65 percent owned by Verizon, which is looking to expand its video play beyond Verizon FiOs, which has a limited geographical footprint. Meanwhile, Coinstar, which has been talking about such a product for years, gets Verizon’s expertise with streaming when it finally moves online.

The product is slated to launch in the second half of the year, and there is no word yet on its name or pricing. Verizon and Redbox say they want to build on Redbox’s relationship with Hollywood studios, and Verizon’s FiOs content deals.

But it’s too soon to say how much, and what content, the new company will be able to secure. And with so many buyers — Netflix, Amazon , Apple — the price of premium content won’t be cheap.

It’s no coincidence that Redbox is amping up its competition for Netflix the very same day that Netflix launches its first original series. Today, Netflix introduced “Lilyhammer,” a series about a mobster, played by Steven Van Zandt, who is sent by the witness protection program to Lillehammer, Norway. Netflix is making all eight episodes available to stream today, for what CEO Reed Hastings calls “Binge Viewing.”

This is one of five original series Netflix has in the works as it looks to lure more streaming subscribers and shift focus away from DVD rentals. The company calls original content an “experiment,” and says it’s spending less than 5 percent of its budget on original series.

But while Netflix figures out if this model works, these series will weigh more on free cash flow than licensed content since they demand more payment upfront. We’ll see if Redbox and Verizon’s new venture goes into original content as well as they all try to compete with the likes of HBO Go.

Questions? Comments? MediaMoney@cnbc.com

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.