Redbox delays IPO prospectus

Kiosk leader planned to file by end of Q2

By Danny King -- Video Business, 7/1/2008

JULY 1 | Redbox, the largest U.S. operator of movie-rental kiosks, delayed filing its prospectus for a planned public offering after the stock markets had their worst second quarter in six years.

Redbox, majority owned by coin-exchange machine operator Coinstar, said in May that it would file its prospectus by the end of the second quarter. Following that announcement, the company hired former JetBlue Airways chief financial officer John Harvey as its financial chief.

The company, whose investors also include McDonald’s, looked to take advantage of its leadership position in a kiosk industry predicted to surge as movie-rental chain stores cut units. U.S. consumers, attracted by movie-kiosk prices that are lower than movie rentals at stores such as Blockbuster, will spend $800 million at kiosks by 2010, triple the amount spent last year, according to Convergence Consulting Group. Meanwhile, store rental revenue, estimated at $5.4 billion last year, will fall to $3.1 billion by 2010, according to Convergence.

Redbox’s plans, however, coincided with a credit crunch and surge in gas prices that has helped to create a pullback in investment, causing the Dow Jones Industrial Average to drop 7.4% during the second quarter, the largest second-quarter decline since 2002. The Dow is down 20% since its October 2007 record high.

"They were certainly showing some decent growth, and we have to assume the business is trending the same as it was a month ago," said Sterne Agee & Leach analyst Arvind Bhatia, who covers Blockbuster. "It’s not good to come out with an offering when the market’s taking a beating."

Kristin Zanini, a Redbox spokeswoman with an outside firm, said the company won’t comment on its filing plans.

Coinstar, which had split 95% of Redbox’s ownership with McDonald’s, in January paid $5.1 million to boost its stake to 51% from 47.3%, valuing Redbox at about $140 million.

Redbox more than doubled its kiosks to 7,900 as of March 31, from about 3,000 a year earlier, Coinstar said in May. Redbox in February announced agreements with Walgreens and Wal-Mart that will bring its kiosk total to more than 11,000 by the end of next year. The company’s next-largest competitor, closely held The New Release, had about 2,100 North American kiosks as of February and planned to add another 1,000 machines by the end of the year.

Shares of Blockbuster, the largest U.S. movie-rental chain, dropped 23% during the quarter, while shares of Netflix, the largest movie-rental operator via mail, fell 18%.