Redbox 2007 Annual Report Download - page 9

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the cross-selling opportunities we expect. Furthermore, we have incurred and we may incur adverse accounting
charges related to the entertainment services business. For example, in February 2008, we reached an agreement
with Wal-Mart to significantly expand our coin-counting machines and our DVD kiosk locations over the next 12 to
18 months and will be removing or relocating roughly 50% of Wal-Mart cranes, bulk heads and kiddie rides over the
next two quarters. This decision, along with other contract terminations or decisions to scale-back the number of
entertainment machines with other retail partners as well as macro-economic trends negatively affecting the
entertainment service industry, resulted in excess equipment and inventory. As a result, we have recorded a pre-tax
charge for entertainment assets of $65.2 million for the three month period ended December 31, 2007. For these and
other reasons, the entertainment services business could materially and adversely affect our business, operating
results and financial condition.
There are many risks related to our investment in Redbox and our acquisition of DVDXpress that may pre-
vent us from achieving the objectives for our entry into the DVD business and negatively impact our
business.
The home video industry is a highly competitive industry with many distribution channels. We compete in this
business through our investment in Redbox and our acquisition of substantially all of the assets of DVDXpress, both
providers of self-service DVD kiosks. Some of the risks that could negatively impact our participation in this
industry include:
• Competition from other providers, including those using other distribution channels, having more expe-
rience, better financing, and better relationships with those in the movie industry, than we have, including
traditional video retailers like Blockbuster, online retailers like Netflix, other retailers like Wal-Mart,
pay-per-view/cable/satellite and similar movie content providers like Comcast, and other forms of movie
content providers like computer download sites.
• Changes in the sequential timing of when movie content is provided to the various movie content distribution
channels; for example, studios may change, shorten or discontinue altogether the period they have
historically provided between the time movie content is provided to more traditional video retailers (usually
directly after theatrical release) and to other movie content providers such as pay-per-view/cable/satellite
and computer download providers (usually only after a significant period of time following distribution to
the more traditional video retailers, e.g., one month or longer).
• Changes in consumer content delivery preferences, including more use of personal video recorders (e.g.,
TiVo), pay-per-view/cable/satellite and similar technologies, computer downloads, portable devices, and
other mediums, and less demand for a high volume of new movie content due to such things as larger home
DVD and downloaded movie libraries.
• Increased availability of movie content inventory through personal video recorders, pay-per-view/cable/
satellite and similar technologies, computer downloads, portable devices, and other mediums.
• Decreased quality of movie content availability for self-service DVD distribution.
• Decreased costs related to purchasing or receipt of movie content, including less expensive DVDs, including
due to piracy, and cheaper use of pay-per-view/cable/satellite and similar technologies.
Although we currently own the majority of Redbox and have the right to appoint three of the five repre-
sentatives to Redbox’s board of managers, under the Redbox formation documents, GetAMovie, Inc., a minority
owner and subsidiary of McDonald’s Corporation, has the right in some circumstances to require the sale of
Redbox, including Coinstar’s sale of its equity. Further, until December 1, 2008, GetAMovie has the ability to
require Coinstar to sell the portion of its business relating to DVDXpress to Redbox. Accordingly, should
GetAMovie take specific actions, Coinstar could be required to sell all of its interests in the self-service DVD
kiosk business. In addition, we believe the general success of Redbox depends to a significant extent on Coinstar
and GetAMovie having a positive working relationship and coordinating in the development of the Redbox
business, including through McDonald’s. Adverse developments relating to any of these risks as well as others
relating to our participation in the home video industry could significantly affect our business, financial condition
and operating results.
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