Redbox 2003 Annual Report Download - page 6

Our transportation partners are also linked to the Coinstar network, enabling dynamic route scheduling by
providing them daily reports that detail which Coinstar units need to be emptied of accumulated change. The
transportation partners pick up the accumulated change and deliver it to a commercial processing facility where
the coins are sorted. The counts are then re-verified and checked against the Coinstar network’s unit count to
ensure accuracy. When the verification process is complete, the coins are deposited in a local bank. Funds
representing the coin value processed less the transaction fee we charge consumers (which, in the United States,
is typically 8.9%) are wired to the retailer as reimbursement for cash paid to the consumer or amounts applied
toward retail purchases. We retain the remaining coin value, which represents our revenue, as our own
transaction fee. On a monthly or quarterly basis we pay our retailers a service fee calculated as a percentage of
the transaction fee we charge consumers.
Financial Information about Industry Segments
See Note 16 to our consolidated financial statements for a summary of net revenue from unaffiliated
customers, net income (loss) from operations and identifiable assets attributable to our business segments for
fiscal years ended 2003, 2002 and 2001.
Significant Coin–Counting Opportunity
We believe the market for coin-counting services is very large. Traditionally, banks and other depository
institutions have been the primary means by which consumers could convert coins into cash, but they typically
have provided the service only to their customers and generally only after the customer has pre-sorted, counted
and wrapped the coins—a very inefficient and labor-intensive process. The prevalence of coins in cash
transactions and the lack of a convenient alternative for converting coins into cash have resulted in the continual
accumulation of coins by consumers.
Growth Strategy
Our objective is to drive trial and repeat usage of the Coinstar service, to continue installing new Coinstar
units, to develop new markets, to leverage our network through new product initiatives, and to achieve potential
growth through acquisitions. Key elements of our growth strategy include:
Driving trial and repeat usage. In September 2003, we commissioned NFO WorldGroup, an independent
research company, to perform a study regarding customer awareness and usage of our machines. This study
indicated that only approximately 20% of the people living in markets where Coinstar machines have been
installed for 12 months or more have tried our service. However, we enjoy high repeat usage of the Coinstar
service. According to an earlier study performed by NFO WorldGroup, approximately 80% of the people who
have tried our service indicate they are likely to use it again. We believe that through effective marketing we can
build greater awareness of our service that will drive repeat usage to create recurring revenue streams and
enhance the revenue growth of our coin recycling business.
Increasing our installed base of Coinstar units. We plan to continue expanding our presence in North
America and the United Kingdom. We plan to focus on high traffic supermarkets as our primary retail locations
because of the prevalence of large regional chains, geographic concentration of stores and recurring consumer
traffic. We believe an opportunity exists to increase the number of Coinstar units installed through increased
penetration of existing retail partner stores as well as by entering into contracts with new retail partners.
Supermarkets offer a large market of potential consumers, a convenient location for multiple consumer visits and
opportunities for large-scale deployments.
In addition to targeting high traffic supermarkets, we continue exploring ways to reduce the cost of servicing
our Coinstar machines and/or the cost structure of unit production to allow us to profitably penetrate rural markets.
We estimate that our viable universe of installations, which includes stores in which we currently have machines
installed, consists of between 16,000 to 18,000 stores in North America and in the United Kingdom.
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