Outerwall: Defining Success

The Motley Fool is on the road in Seattle! Recently we visited Coinstar -- now officially renamed Outerwall  (NASDAQ: OUTR  ) -- to speak with CFO-turned-CEO Scott Di Valerio about the 22-year-old company's well-known coin-cashing machines, as well as its more recent acquisition of Redbox, and future initiatives to expand into other aspects of the automated retail market.

In this video segment, Scott explains how Coinstar evaluates the performance of its different types of kiosks as business expands beyond physical sales from the machines into online opportunities and adjacencies such as gift cards for coins, and ticket sales through Redbox. The full version of the interview can be watched here.

A full transcript follows the video.

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Eric Bleeker: How many employees worked here when you got started?

Scott Di Valerio: When I got here -- we're at about 3,000 today -- we were about 2,000 or so when I got here, so it's grown quite a bit.

Bleeker: It probably helps everyone's aligned, then, as you're getting so much bigger.

Di Valerio: Yes, definitely.

Bleeker: Great. As we're looking at the different lines that you have -- Coinstar, Redbox, Rubi on the new ventures front -- what are the metrics for success? We already talked about Rubi at, initially, 12 cups a day, a great rate for that.

How would you evaluate success, especially now that you're in a phase with Redbox where it's more optimization than building out the level of machines?

Di Valerio: You bet. For the coin machine, for example, we look at transactions and size of transactions for the coin machine, so how many transactions per day, and what are the size of the transactions?

We're also weaving in the fee-free side of the business a little bit as well, which is where you can pour your coins and get a gift card out -- get a card out that, if you pour $50 in you get $50 out -- because that retailer pays for the fee. We think that's going to help us bring new customers in. Those are the metrics we look at to try to grow the coin business.

For Redbox, you certainly are looking at rents per kiosk per day as a key metric, but we're also looking at revenue per kiosk, because with Blu-ray and games, that increases the overall revenue out of the kiosk in order to be able to drive the business as we look forward.

We're beginning to track a little more, too, the online reserving, because that, again, helps us standardize the business out a little bit. Those are some of the key metrics.

You talked about Rubi with cups per day. As we look at the Sample It business, it's certainly number of samples per day that are bought, but it's also the coupon redemption, tracking the percent of coupons that are taken out of the machine -- how many of those are actually getting utilized at retailers in order to purchase the product?

The Star Studio one, we certainly have ... not only do we look at the number of transactions that happen -- how many people come in and do a photo session -- but how many people uplift what they're doing. They might start with a particular thing that they plan on doing, and they add people, or they add some of the features that they want to do, so you look at both the number of transactions plus the revenue per transaction.

Each of the businesses are slightly different, but we try to pick out the ones that we think show the businesses performing at the right levels.

Bleeker: Just to add onto that a little, what about tickets? Redbox tickets -- how would you evaluate something like that, that could both increase people coming to the machine by added revenue on top? How are you evaluating an opportunity like that?

Di Valerio: Yeah, we're going deep in Philadelphia and Los Angeles to really see what kind of tickets people will want to get, and does the business model really work?

How we evaluate that is what you would normally think: How many transactions are you getting? What's the size, so how many tickets per transaction are getting purchased, and what's the dollar value of those tickets that are getting purchased? -- are all key aspects, because if you're getting lots of transactions but they're to low-dollar events, you might tweak the business model a certain way.

The other thing that's really interesting for the tickets business is there's an online component to that, so you can buy tickets on Redbox.com, or you can do it certainly at the kiosk, or you can go to the kiosk and ask the kiosk to send you an email to remind you about the tickets so you can buy them online.

Really, we're looking at how are people utilizing it online, versus how many transactions are actually happening at the kiosk, because again we can tweak the business model around that if people are more comfortable doing the transaction online, but discovering that an event is happening at the kiosk.

One of the reasons why 30 to 40% of the tickets go unsold to events around the country each year is lack of awareness that an event was actually happening. We have 40,000 points of presence where people are going up, and 40 million unique credit cards transacting with it each quarter; it gives us a great opportunity to let people know that a particular event is happening in their area and they might want to go ahead and purchase a ticket for it.


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