Redbox 2004 Annual Report Download - page 19

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the Financial Statements and related Notes
thereto included elsewhere in this Annual Report on Form 10-K. Except for the historical information, the following
discussion contains forward-looking statements. Actual results could differ from those projected in the forward-looking
statements. Please refer to “Special Note Regarding Forward-Looking Statements” at the beginning of this annual report.
Overview
We are the leader in the self-service coin-counting services market. We own and operate the only multi-national fully
automated network of self-service coin-counting machines across the United States, in Canada and in the United Kingdom.
We believe we are the leading owner and operator of skill-crane machines and bulk vending machines in the United States.
We refer to these services collectively as entertainment services. We also offer a range of electronic payment (“e-payment”)
services such as stored value cards, payroll cards, prepaid MasterCard
®
cards and prepaid wireless products at point-of-sale
terminals, stand-alone e-payment kiosks and e-payment enabled coin-counting machines in drugstores, universities, shopping
malls, supermarkets and convenience stores in the United States and the United Kingdom.
We launched our business in North America with the installation of the first Coinstar coin-counting machine in the
early 1990s, and in 2001 we began our commercial rollout of coin services in the United Kingdom. Since inception, our coin-
counting machines have counted and processed more than 210 billion coins worth more than $10.5 billion in more than 300
million self-service coin-counting transactions. We now own and operate more than 12,000 coin-counting machines in the
United States, Canada and United Kingdom and more than 171,000 entertainment services machines in the United States and
Mexico. We also utilize more than 15,000 point-of-sale terminals and own and operate approximately 150 stand-alone e-
payment kiosks for e-payment services in the United States and the United Kingdom. In addition, approximately 2,450 of our
12,000 coin-counting machines are e-payment enabled.
Our acquisition of ACMI and the continued growth of our e-payment services has significantly broadened our base of
existing and potential retail partners and the depth and reach of our sales and field service forces, thereby greatly expanding
the opportunity to cross-sell our coin, entertainment and e-payment services. For example, we can now offer entertainment
services to traditionally coin services-only retail partners, such as supermarkets, and offer coin services to traditionally
entertainment services-only retailers, such as mass merchandisers and warehouse clubs. We also believe we have expanded
opportunities to cross-sell our e-payment services. We now have more than 1,200 field service employees throughout the
United States and internationally, which have expanded our geographic reach to develop and maintain strong relationships
with new and existing retail partners. With the combination of coin, entertainment and e-payment services, we are positioned
as a single-source supplier for retailers to capitalize on their front-of-store space, an area that generally has not been managed
to optimize revenue per square foot.
Coin services
We estimate that at any one time, there is approximately $10.5 billion worth of coin sitting idle in households in the
United States. In 2004, consumers processed more than $2.1 billion worth of coin through our coin-counting machines.
We own and service all of our coin-counting machines, providing a “turn-key, headache-free” service to retailers. Our
machines are easy to use, highly accurate, durable, easy to service and capable of processing up to 600 coins per minute.
Consumers feed loose change into the machines, which count the change and then dispense vouchers or, in some cases, issue
e-payment products, at the consumer’s election. Each voucher lists the dollar value of coins counted, less our transaction fee,
which is typically 8.9% of the value of each transaction. Our patented, proprietary technology helps us to maintain high up-
time, remotely monitor performance and minimize the potential for losses associated with voucher fraud.
Since we pay a percentage of our transaction fees to our retail partners, our coin services benefit our retail partners by
providing an additional source of revenue. In addition, our studies show that our coin services increase foot traffic in our
retail partners’ stores and that approximately 45% of our customers spend all or a part of the proceeds of their vouchers in the
store. Our leading coin services retail partners include The Kroger Co. and Albertson’s, Inc. supermarket chains.
Entertainment services
We estimate that the market for our entertainment services is approximately $1.1 billion in the United States. We
believe we are the leading owner and operator of skill-crane and bulk vending machines in the United States.
Our entertainment services machines consist primarily of skill-crane machines, bulk vending, kiddie rides and video
games, which are installed in more than 18,000 retail locations, totaling more than 171,000 pieces of equipment. The
majority of our entertainment services revenue is derived from skill-crane machines that dispense plush toys, novelties and