NCR’s Blockbuster assault on video kiosk biz
NCR Corp. (NYSE:NCR) is coming on strong in entertainment. The 125-year-old technology company, best known for its ATM operations, has gone from zero to 60 in the rapidly growing DVD rental kiosk market, sliding into the No. 2 slot behind Coinstar Inc.’s (NASDAQ:CSTR) Redbox in a little more than a year.
Since striking a deal with Blockbuster Inc. (NYSE:BBI) in August 2008 to build Blockbuster-branded DVD rental kiosks, NCR has acquired TNR Holdings Corp., which operated 2,200 kiosks in the U.S. and Canada, installed 500 Blockbuster Express machines in shopping centers around the country and has said it has plans to operate 10,000 kiosks by the end of 2010.
And if Coinstar had any doubt it was in NCR’s sights, NCR removed them in June when it poached Alex Camara from Coinstar to head up its Entertainment Solutions unit, which includes its Blockbuster Express DVD rental operations. Camara had been with Coinstar for 10 years and had most recently served as VP and general manager of the company’s Coin and Entertainment division.
Coinstar’s operations are certainly attractive. Revenue for Redbox Automated Retail LLC, which accounts for about 60% of Coinstar’s overall revenue, jumped 90% in the third quarter from a year ago, to $198 million. And Wedbush Morgan Securities analyst Michael Pachter, who picked up coverage of Coinstar last week, expects things to get even better. He predicts Coinstar’s 2009 revenue will climb 26% to $1.15 billion from a year earlier, and in 2010 it will grow another 34%, to $1.54 billion.
The expected growth goes hand in hand with Coinstar’s new strategy to focus on the development of its DVD unit by shedding noncore assets — Money Transfer and E-Pay businesses — and investing $130 million in the unit (The Deal Pipeline subscribers can read more here). Coinstar, which also runs the green coin-to-cash conversion machines in shopping centers, plans to expand to 22,000 Redbox kiosks by the end of 2009. It now operates 20,600 stations, a 243% jump from just two years ago.
It’s worth noting that Coinstar’s new focus followed closely the appointment of activist investor Arik Ahitov to the board. It’s reasonable to think that Ahitov, VP of Shamrock Capital Advisors Inc., has been an impetus behind the shift. The question is: Could he be ready to effect more change — perhaps even an offer from NCR?
Coinstar may have reason to court one at some point. As the rental industry moves toward digital downloads — something that is well underway in France and parts of Western Europe, and is being tested in the U.S. — NCR is undoubtedly better equipped to tackle the needs of tech-savvy consumers.
Even if a bid for Coinstar isn’t in NCR’s plans, it may find a smaller acquisition in DVDPlay, a venture capital-backed kiosk rental operator that holds the No. 3 spot in the kiosk rental market with more than 1,400 stations in the U.S. and Canada.
In 2007, DVDPlay said it planned to expand from 1,100 units to more than 3,000 units the following year. However, in the two years since then, DVDPlay has added only 300 kiosks, likely taking the wind out of CEO Chuck Berger’s statement, also made in 2007, that the company would be profitable in 2008 and may sell shares to the public in late 2009.