Finding Success in the DVD Rental Space

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 brief video segment Scott acknowledges that DVD rental revenues are falling, and explains why Redbox is thriving in that environment. The full version of the interview can be watched here.

A full transcript follows the video.

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Austin Smith: I want to talk about the specter in the room of Redbox; obviously your cash-cow business, you've had a lot of success with it, but a lot of the naysayers would say, "You guys are already at 50% market share, and the DVD rental industry is an eroding space."

I'm wondering, what is it about Redbox, and Coinstar in general, that is going to ... what would you say to the naysayers who are looking at this industry and saying, "Well, it's eroding. How are you guys going to maintain relevance?"

Scott Di Valerio: Certainly. One of the key things with the Redbox business is we continue to grow our market share and continue to increase overall rents by focusing on the customer and bringing a great new release product to the customer.

There's not a company that can deliver a new release product at the price point we do, and I think our customers are rewarding us for that. The first quarter of 2013, we have 40 million unique credit card transactions, which was up a million from the fourth quarter of 2012 and up over 6% from the year before, so we're growing our customer base.

We rented nearly 200 million discs in the first quarter, so we're continuing to grow out that business; that was an increase. What we're seeing, the NPD data shows that there's a slowing -- the decline in the physical rental market -- as the market has absorbed the demise of the brick-and-mortar stores, where lots of rentals were going, the national chains, and have converted to Redbox, for the most part.

You're seeing revenues come down in the rental market, but those revenues are coming down in large part because of the price point differential from, when you went to brick-and-mortar, you paid a higher price point than the $1.20 or $1.50 that you do at Redbox.

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