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Cha-Ching for Coinstar and Redbox

family watching tv
family watching tv

Coinstar , which runs coin counting machines and owns the DVD rental kiosk company, Redbox, is flying high the morning after its earnings report.

News that the company's first quarter profit tripled sent the stock more than 30 percent higher at the market open.

Though gains have moderated — at last check the stock was up 20 percent — there's no question that Wall Street is thrilled with these results and the promise of ongoing growth from Redbox.

Last quarter more people rented $1-per-day DVDs from Redbox kiosks — a 70 percent jump revenue drove the company's growth. The company's first year profit more than tripled to 21 cents a share, far more than the 13 cents in EPS analysts estimated. Revenue nearly doubled to $350 million and the company. The company also boosted its guidance.

Redbox's recent resolution of ongoing (and expensive) legal battles with Hollywood studios gives investors better visibility and reassurance that this business should have legs. Just last week Redbox signed distribution deals with Universal Studios Home Entertainment and 20th Century Fox; back in February it announced its deal with Warner Bros. Redbox is agreeing to wait 28 days after a DVD hits stores before offering it for $1 a day in its kiosks. In exchange studios promise Redbox better terms, plenty of inventory, and access to Blu-Ray titles

Analysts are not concerned about the 28-day window after a film's release hurting Redbox's results. Rather, the improved costs and reassurance about access to titles should only benefit results.

The very reason Hollywood studios were so threatened by Redbox, is the source of its success — it's an affordable impulse rental of a new DVD for just a fraction the cost of buying a DVD. Now there are some big questions on the table: Will revenue from Redbox rentals also benefit the studios? Will delaying Redbox rentals protect and benefit retail sales of new DVD releases?

But as consumer spending comes back, could people become more interested in buying than renting, hurting Redbox's business? As we saw with the phenomenal success of Avatar's DVD release, people will rush to stores the first day a DVD hits shelves. And Blu-Ray is increasingly popular, but it's only available on a trial basis at some locations. "Avatar" will be available for rent at Redbox starting in mid-May. It's already on track to sell more DVDs than any other film in recent history; we'll see how it affects its Redbox rentals.

(Editor's Note: General Electric, which was mentioned in this post, owns both CNBC and Universal Studios Home Entertainment.)

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