Redbox 2003 Annual Report Download - page 10

Product Research and Development
Since inception, we have focused our research and development efforts on developing and enhancing our
operating system and support network for continued expansion of our network and addition of value-added
services. We employ software engineers, information technology specialists and other professional staff in these
efforts. We also contract with a number of specialized outside consultants for additional services.
Manufacturing and Supply
Coinstar units are currently assembled by two manufacturers: Fabrication Services, Inc. located in Kent,
Washington and Peak Industries, Inc. located in Longmont, Colorado. Both are manufacturers that utilize several
sub-suppliers to provide components and subassemblies. Each Coinstar unit is manufactured to our proprietary
designs and specifications. We own all designs, documentation, tooling, specialized fixtures and test equipment.
Our contract manufacturers inspect and test each unit for quality assurance prior to shipment. The use of contract
manufacturers has several advantages, including decreasing capital investment in property, plant and equipment,
the ability to leverage contract manufacturers’ purchasing relationships for lower material costs, minimal fixed
costs of maintaining unused manufacturing capacity, greater capacity flexibility and the ability to utilize
suppliers’ broad technical and process expertise.
Proprietary Rights
We rely on a combination of patent, copyright, trademark, service mark and trade secret laws and
contractual restrictions to protect our proprietary rights in products and services. We have also entered into
confidentiality and invention assignment agreements with our employees and contractors.
We have made several technological advancements relating to self-service coin counting, distribution of
card-related products, and performing certain financial transactions that we believe are important to the
successful operation of the Coinstar unit in a self-service environment. These advancements can be implemented
mechanically, electronically and through our wide-area network software. For example, these technologies
enable the Coinstar unit to operate effectively in light of moisture, dust, lint, dirt, paper, paper clips and other
debris with infrequent clogging or malfunctioning. In addition, these technologies enhance the coin
discrimination capability of the Coinstar unit and significantly reduce the possibility of miscount or a fraudulent
coin going undetected. Further, we have also developed voucher encryption technologies that can greatly reduce
exposure to losses associated with voucher fraud. Since October 1996, Coinstar has received over 50 United
States and foreign patents relating to aspects of coin cleaning, machine networking, fraud avoidance and voucher
authentication, coin discriminating, machine security and coin de-jamming.
Competition
We are the first and only company to own and operate a multi-national network of self-service coin
processing machines. We believe that our key competitive advantages include our technology and expertise
developed over the past twelve years, the multi-national Coinstar network, our dedicated field service
organization, the strong relationships we have with a substantial majority of the leading supermarket chains in
the United States and in the United Kingdom and our proven ability to execute our rollout strategy. We face
increasing competition from supermarket retailers and banks that purchase and service their own coin-counting
equipment. We compete indirectly with manufacturers of devices that enable consumers to count or sort coins
themselves, and we also compete directly or indirectly with banks and similar depository institutions for coin
conversion customers. Banks are the primary alternative available to consumers for converting coins into cash,
and they generally do not charge a fee for accepting rolled coins. As the market for coin processing develops,
banks and other businesses may decide to offer additional coin processing services, either as a customer service
or on a self-service basis, and compete directly with us.
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