Redbox 2006 Annual Report Download - page 7

with our coin and entertainment services, our e-payment services provide an additional revenue stream for our
retailers as we pay a fee through commissions earned on the sales of e-payment services. We have relationships
with national wireless carriers, such as Sprint, Verizon, T-Mobile, Virgin Mobile and Cingular Wireless.
Competitive strengths
We believe our key competitive strengths are:
Market leadership. We are the leader in the self-service coin-counting services market and in the skill-
crane and bulk vending markets. We own and operate the only multi-national fully automated network of self-
service coin-counting machines in the United States, Puerto Rico, Canada and the United Kingdom. To date, we
have installed more than 13,500 of our coin-counting machines in those countries, which account for
approximately 80% of the installed base in those markets. Currently, we estimate that 75% of the US population
lives within five miles of one of our coin-counting machines. In addition, we are the leading owner and operator
of skill-crane and bulk vending machines in the United States, with more than 300,000 pieces of equipment
installed in more than 35,000 retail locations.
Profitable, turn-key solutions for our retailers. We own, operate and maintain all of our machines and
provide our retailers with low-maintenance, turn-key solutions and revenue-generating services. As a single-
source provider with an array of products, we work with retailers to evaluate their front-of-store performance and
related offerings to maximize revenue and profitability. Our studies show that our coin-counting machines
increase foot traffic to host stores, and that approximately 46% of customers spend all or a part of the proceeds of
their vouchers in the retailers’ store. Retailers 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 coin-counting machines and skill-crane machines generate five to eight times the supermarket
average for profitability per square foot, among the most profitable per square foot in a supermarket, compared to
the supermarket average reported in an independent survey.
Differentiating, patented coin services technology. We believe that our proprietary technology sets us
apart from our competitors. We have over 70 United States and international 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 2006, 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 retailers, 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 13 years, we have invested more than $390 million
in capital equipment and research and development to build our network, and believe that this investment
represents a significant competitive barrier to entry. In addition, the scale and size of our entertainment services
allows us to achieve better economies of scale and provide higher quality merchandise in our machines. 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 retailers and a broad range of e-payment
related product offerings gives us a competitive edge in the e-payment services market.
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