Redbox 2006 Annual Report Download - page 10

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capabilities, long-term non-cancelable contracts, installation of our machines and equipment in high-traffic and/
or urban or rural locations and new product and service commitments. Together with other factors, an increase in
service fees paid or other financial concessions made to our retailers could significantly increase our direct
operating expenses in future periods and harm our business.
We may be unable to attract new retailers and penetrate new markets and distribution channels.
In order to increase our coin-counting, entertainment and e-payment services machine and equipment
installations, we need to attract new retailers and develop operational or unit production cost efficiencies that
make it feasible for us to penetrate lower density markets or new distribution channels such as banks and credit
unions. We may be unable to attract new retailers or drive down costs relating to the manufacture, installation or
servicing of coin-counting, entertainment and e-payment services machines to levels that would enable us to
operate profitably in lower density markets or penetrate new distribution channels. If we are unable to do so, our
future operating results could be adversely affected.
Our strategy to cross-sell our products and services to retailers may be unsuccessful.
An important part of our 4th Wall solution is based on cross-selling our selection of products and services to
our retailers. We may be unsuccessful in expanding our relationships with retailers to include additional products
and services in their storefronts, due to, among other things, failure to negotiate contracts for additional products
and services on acceptable terms, other parties providing similar products and services on more favorable terms,
or reluctance by retailers to obtain these historically separate product and service categories from a single
provider. If we are unable to effectively implement our cross-selling strategy, our business could be negatively
impacted.
We may be unable to identify and define product and service trends or anticipate, gauge and react to changing
consumer demands in a timely manner.
To be competitive, we need to develop new products and services that are accepted by the market and
establish third-party relationships necessary to develop and commercialize such products and services. For
example, toy and other products dispensed in our entertainment services machines must appeal to a broad range
of consumers whose preferences cannot be predicted with certainty and are subject to change. If we misjudge the
market for our products and services, we may be faced with significant excess inventories for some products,
such as toys and other entertainment products, and missed opportunities for sales of other products and services.
Further, in order to develop and commercialize new non-entertainment products and services, including our
money transfer business, we will need to enhance the capabilities of our coin-counting machines and e-payment
machines and equipment, as well as our related network and systems through appropriate technological solutions,
and establish market acceptance of such products or services. We cannot assure you that new products or services
that we attempt to commercialize will be successful.
We may be unable to achieve the strategic and financial objectives for our entry into and our expansion of our
entertainment services, and our failure to do so could materially and adversely affect our business, operating
results and financial condition.
We entered the entertainment services market as a result of our acquisition of ACMI in July 2004, and have
since expanded this line of business through other acquisitions, including Amusement Factory in 2005. Our
entertainment services now represents our largest source of revenue. There are a number of financial and
operational risks associated with this line of business. For example,
• We may be unable to leverage the comparatively lower growth and lower margin entertainment services
business with our other lines of business to produce the cross-selling opportunities we had anticipated.
• We may be unable to achieve the operating results for the entertainment services business in line with
our expectations.
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