Outerwall (NASDAQ:OUTR), the parent company of Coinstar and Redbox, drastically lowered its guidance for 2016 compared with the previous year, and the stock dropped precipitously. The company doesn't seem to have a plan to cope with the decline. Instead it's blaming the producers of the movies they put in its box.
In this clip, Chris Hill and Bill Barker discuss the real problems behind Redbox's performance and what this lack of insight means for the company and investors.
A transcript follows the video.
This podcast was recorded on Dec. 8, 2015.
Chris Hill: Outerwall is the parent company of Redbox and Coinstar. Shouldn't they just change their name to Kiosks Inc.? Coinstar, where you can take your loose change and dump it all in there?
Bill Barker: Well, this is Outerwall. That's what it's referring to. It used to be called the fourth wall, I think.
Hill: I think the fourth wall just refers to television or movies, when they look into the camera.
Barker: That's one of the references. But go into a supermarket. You've got, traditionally, what's on the right wall? Produce. And the left wall, you've got something else.
Hill: A bakery or deli, or something like that.
Barker: And the back wall?
Hill: The back wall is typically something cold.
Barker: Meat, fish, chicken, milk.
Hill: So, you're saying ...
Barker: The fourth wall is where you come in that's behind the cash registers. And that's where you would have the Coinstar for your change, and the Redbox. So that's the area of the store that they want to be playing in.
Hill: Wow. So, this is a company that used to be called Coinstar, and then someone at the company got the bright idea and went through, presumably with company management, the same spiel that you just went through with me. I'm sorry, Outerwall, you're making me do too much work here.
Barker: I also think Coinstar became less of the driver than Redbox, which is bad news today.
Hill: That is bad news today, because Redbox -- and this is why the stock is the No. 1 loser on the Nasdaq, falling more than 20%; they lowered guidance for the full fiscal year, and it is entirely on Redbox. And we were talking just before we started taping, here's the thing that would trouble me if I were a shareholder, beyond the fact that my stock is worth 20% less than it was yesterday -- and I'm gonna quote directly from what management put out in this statement: "While Redbox has driven improvements in both unique customers and total rentals, during the first two months of the fourth quarter, relative to the third quarter," and here's the money quote, "the business has not met the company's performance expectations and continues to remain challenged by the historically low box office during the third quarter, which was the worst theatrical box office in Redbox kiosks in four years."
They're blaming the movies.
Barker: The movies. Hollywood is to blame. ... Hollywood, not making anything good, according to Redbox.
Hill: You know who would disagree? Pretty much everyone else in the movie business.
Barker: Ah, people have stopped watching everything.
Hill: No, the studios are making money --
Barker: Nobody's turning on Netflix, nobody's finding anything to rent or stream, according to Outerwall.
Hill: This is delusional, isn't it?
Barker: Uh, they're ... yeah. They're in the midst of fighting a demographic trend which is not to their benefit. And streaming is going to continue to encroach on -- have you ever used Redbox?
Hill: Every once in a while, I'll use Redbox. But this is some pretty extraordinary wordsmithing that they did. Because I get that they can't come up and say, "You know what the problem is with our business? We're competing with Netflix, Hulu, Prime, HBO Go, and tomorrow, the five new video streaming services that will pop up. Because that seems to be a better business model than DVD rentals."
Barker: Yeah. Yes. That's true. So, why not blame Hollywood? Everybody else blames Hollywood, right?
Hill: Politicians seem to do it a lot.
Barker: Yeah, when it suits them.
Hill: When it's to their advantage.
Barker: Today it suits Outerwall. "Get moving, Hollywood! Make something worth watching! Make something worth renting from a kiosk!" I think that's what they're saying. "You've made lots of things that are worth watching in other forms. Now it's time to focus back on the kiosk rentals, which you once used to be able to do."
Hill: Can't we think of the DVD kiosk businesses?
Barker: Think of the poor DVD kiosks.
Bill Barker has no position in any stocks mentioned. Chris Hill has no position in any stocks mentioned. The Motley Fool owns shares of and recommends and NFLX. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.