Redbox 2008 Annual Report Download - page 15

The entertainment services market has brought with it risks that have and could continue to adversely affect
our business, operating results and financial condition.
In July 2004, we entered the entertainment services business, which has represented a significant source of our
revenue, although a decreasing percentage of our revenue over the last several years. This business is associated
with various financial and operational risks affecting our business, including a number of risks recently realized due
to the economic downturn such as reduced demand for crane, bulk head and kiddie ride services. For example, in
February 2008, in connection with an agreement with Wal-Mart to significantly expand our coin-counting machines
and our DVD kiosk locations, we began removing or relocating roughly 50% of Wal-Mart cranes, bulk heads and
kiddie rides. This action, along with other contract terminations or decisions to scale-back the number of
entertainment machines with other retailers as well as macro-economic trends, negatively affecting the entertain-
ment service industry, resulted in excess equipment and inventory. As a result, we recorded a pre-tax charge for
entertainment assets of $65.2 million for the three month period ended December 31, 2007, and we may in the future
record additional impairment charges. In addition, we may be unable to continue to leverage the comparatively
lower margin entertainment services business with our other lines of business to produce the cross-selling
opportunities we desire. For these and other reasons, the entertainment services business could materially and
adversely affect our business, operating results and financial condition.
Defects, failures or security breaches in and inadequate upgrade of our operating systems could harm our
business.
The operation of the coin-counting, DVD, money transfer and e-payment machines and equipment relating to
our business, depends on sophisticated software, hardware, computer networking and communication services that
may contain undetected errors or may be subject to failures. These errors or failures may arise particularly when
new or enhanced products or services are added. In the past, there have been limited delays and disruptions resulting
from upgrading or improving these operating systems. Future upgrades or improvements that may be necessary to
expand and maintain our business could result in delays or disruptions or may not be timely or appropriately made,
any of which could seriously harm our operations.
Certain aspects of the operating systems relating to our business are outsourced to third-party providers,
including long-distance telecommunications. Accordingly, the effectiveness of these operating systems is to a
certain degree dependent on the actions and decisions of third-party providers.
Further, while we have taken significant steps to protect the security of operating systems and have established
certain back-up systems and disaster recovery procedures, service disruptions may result from intentional or
unintentional acts of third parties, computer viruses, natural disasters, or other causes which are beyond our control.
Any service disruptions, whether due to errors or delays in or failure to adequately upgrade software or computing
systems, interruptions or breaches in the communications network, inadequate back-up or disaster recovery, or
security breaches of the computer network systems, caused by us or third parties, could seriously harm our business,
financial condition and results of operations.
Failure to adequately comply with information security policies or to safeguard against breaches of such
policies could adversely affect our operations and could damage our business, reputation, financial position
and results of operations.
As our business expands to provide new products and services, including additional money transfer, E-pay-
ment and DVD services, we are increasing the amount of consumer data that we collect, transfer and retain as part of
our business. These activities are subject to laws and regulations, as well as industry standards, in the United States
and other jurisdictions in which our products and services are available. These requirements, which often differ
materially and sometimes conflict among the many jurisdictions in which we operate, are designed to protect the
privacy of consumers’ personal information and to prevent that information from being inappropriately used or
disclosed. We maintain and review technical and operational safeguards designed to protect this information.
However, despite those safeguards, it is possible that hackers, employees acting contrary to our policies, third-party
agents or others could improperly access our systems or improperly obtain or disclose data about our customers, or
that we may be determined not to be in compliance with applicable legal requirements and industry standards for
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