Redbox installed more than 40,000 DVD rental kiosks in grocery stores, 7-Eleven's and Wal-Marts over the past seven years, fundamentally transforming the movie business in the process with its low prices and convenience.
This year it is uninstalling kiosks—more than 500 of them in the U.S.
The decision by Redbox's parent company, Outerwall, to start managing its network of ubiquitous red machines for efficiency rather than growth signals a vital change. After years of double-digit increases, Redbox revenue rose only 3% last year, to $1.97 billion, and is projected to stay about even in 2014.
Operating income was flat at $239 million last year, after increasing 41% in 2012 and 74% in 2011.
Amazon is currently experimenting with installing vending machines in airports and other high traffic locations, and they are also installing delivery lockers in various metro areas in the US and UK.
Both programs are run in partnership with one or more companies that specialize in developing and deploying this type of equipment, but if Amazon is going to really get serious about deploying a large scale network of automated retail machines then they are going to want to acqui-hire a company that has the tech and the experience Amazon needs.
Remember, Amazon decided to get serious about ebooks and they bought Mobipocket in 2005. And when Amazon decided to user more robots in their warehouses they bought Kiva Systems in 2012.
And that means Amazon might want to acquire a company that does automated retail machines. (This assumes that Amazon's current vending machines efforts pan out, which is still up for debate.)
Amazon could buy Zoom Systems, the company which is managing their current vending machine efforts. That company is smaller and thus could be acquired for less, and while they know a lot about about distributing merchandize to vending machines they also lack the experience of deploying a huge number of machines.
Outerwall has deployed over 42,000 Redbox machines across the US. The ability to maintain and load-balance a network that large is in and of itself a good reason to buy the company, and Outerwall's experience with developing and deploying that network doesn't hurt either.
So is Outerwall for sale? I don't know, but the WSJ says that it is publicly traded with a value of around $1.4 billion. It is within reach of Amazon's pocketbook. Furthermore, Outerwall is facing a murky future in which Amazon's buyout might be seen as a lifeline:
- At the same time, Illinois-based Redbox faces several challenges. Content deals with five of its six biggest studio partners expire later this year and a joint venture with Verizon Communications Inc. to expand into digital, called Redbox Instant, is foundering, according to available data and people familiar with its business. (WSJ)
- Outerwall will discontinue three new venture concepts: Rubi, Crisp Market and Star Studio. The wind-down process is expected to be substantially complete by the end of the first quarter of 2014. The company expects to record a one-time, pretax charge of $26 million to $29 million in the fourth quarter of 2013 related to the shutdowns. (Variety)
And if the DVD-to-streaming trend continues to grow, Outerwall's problems will only increase, making them a ripe target for Amazon.
But even though this acquisition makes sense there's no guarantee that it will happen. Sometimes deals don't work out, and just because a deal looks like a good idea from the outside doesn't mean it makes as much sense from the inside. Also, Amazon's vending machine efforts might turn out to be a bad move.
But this deal does make a lot of sense from the outside, so if it happens I won't be surprised.
image by ilamont.com