Redbox 2004 Annual Report Download - page 7

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counting machines provide consumers with a convenient and reliable means of converting loose coins into cash. In addition,
we believe we are the leading owner and operator of skill-crane and bulk vending machines in the United States, with more
than 171,000 pieces of equipment installed in more than 18,000 retail locations.
Profitable, turn-key solutions for our retail partners. We own, operate and maintain all of our machines and provide
our retail partners with low maintenance, turn-key solutions and revenue-generating services. In addition, our array of
services allows retailers to work with a single-source provider for key front-of-store needs. Our studies show that our coin-
counting machines increase foot traffic to host stores, and that approximately 45% of customers spend all or a part of the
proceeds of their vouchers in the retail partner’s store. Retail partners also receive a portion of our revenues from our coin,
entertainment and e-payment services transaction fees. We believe that these sources of revenue are very attractive to
retailers. For example, our self-service coin-counting machines and skill-crane machines generate five to eight times the
supermarket average for profitability per square foot, among the most profitable in a supermarket, compared to the
supermarket average reported in a recent independent survey.
Differentiating, patented coin services technology. We believe that our proprietary technology sets us apart from our
competitors. We have 58 US and foreign patents covering various aspects of our coin services business, including our
networked coin-counting machines, coin-cleaning technology and voucher security features. Our coin-counting machines
have a multi-step coin-cleaning process to remove debris, which helps prevent our equipment from becoming jammed. Our
network allows our field service team to remotely monitor each individual coin-counting machine, thereby allowing us to
optimize pickup of coins for maximum efficiency and perform maintenance on a cost-effective basis. These proprietary
features allowed us to achieve availability rates on our coin-counting machines of approximately 95% in 2004, which
underscores our reputation for providing reliable service. Our vouchers are encrypted using our proprietary technology to
minimize the potential for losses associated with voucher fraud. We believe that the combination of our proprietary
technology and reliable machine performance results in a preference for our services compared to our competitors.
Barriers to entry. We believe that our proprietary network of coin-counting machines, combined with our wide
geographic reach and existing relationships with our coin and entertainment services retail partners, would require a
substantial investment of time and resources for other companies to enter the market and compete effectively against us in the
self-service coin-counting and entertainment services markets. In the last 11 years, we have invested more than $275 million
in capital equipment and research and development to build our coin-counting network, and believe that this investment
represents a significant competitive barrier to entry. The scale and size of our entertainment services operations allows us to
achieve better economies of scale and provide higher quality merchandise in our machines, which we believe increases usage,
resulting in higher revenues for us and our retail partners. We believe that any potential competitors in the skill-crane and
bulk vending markets would need to invest significant capital and secure relationships with large scale retailers in order to
challenge our leadership in those markets. In addition, we believe that our existing relationships with retail partners, and a
broad range of product offerings in our e-payment business gives us a competitive edge in the e-payment services space.
Consistent and diversified revenue streams and stable operating cash flow. Our revenues and operating cash flows
have increased each year for the last six years. Our diversified revenue streams are mainly driven by the service fees we
charge our customers and the size and number of customer transactions. For example, in our coin services business, the
average transaction value over the last four years has remained stable at approximately $36, while the annual number of
transactions has grown from 35 million in 2000 to 59 million in 2004. A large proportion of our costs are variable, which
allows us to maintain stable operating cash flows while responding to changes in the business.
Growth Strategy
Key elements of our growth strategy include:
Drive trial and repeat usage. We have undertaken extensive marketing campaigns, machine upgrades and service
enhancements to increase consumer awareness of our coin-counting service and to drive trial and repeat usage. Based on a
2004 survey by NFO WorldGroup that we commissioned, approximately 22% of households have tried our coin-counting
service. In the entertainment services market, we believe that trial and repeat usage is driven by effective merchandising. In
order to drive usage at our entertainment services machines, we offer quality products and frequently rotate the products in
our machines to feature different themes and holidays.
Cross-sell across existing retail relationships. Our recent acquisition of ACMI has created an opportunity for our
businesses to benefit from our respective existing retailer relationships. While we have focused our coin-counting machine
placement within supermarkets, our entertainment services are placed predominantly with mass merchandisers, restaurants,
warehouse clubs and truck stops. Consequently, we believe that there are opportunities to sell our coin-counting services into
channels of distribution where our entertainment business is strong, and vice versa. We also believe that we have the
potential to sell our e-payment services through these channels of distribution. We believe that retailers favor partnerships