Redbox 2008 Annual Report Download - page 8

The termination, non-renewal or renegotiation on materially adverse terms of our contracts with one or more of
our significant retailers could seriously harm our business, financial condition and results of operations.
The success of our business depends in large part on our ability to maintain contractual relationships with our
retailers in profitable locations. Our typical contract term ranges from one to three years and automatically renews
until we or the retailer gives notice of termination. DVD contracts typically range from three to six years. Certain
contract provisions with our retailers vary, including product and service offerings, the service fees we are
committed to pay each retailer, frequency of service, and the ability to cancel the contract upon notice after a certain
period of time. We strive to provide direct and indirect benefits to our retailers that are superior to or competitive
with other providers or systems (including coin-counting systems which retailers could operate themselves or
through a third party) or alternative uses of the floor space that our machines occupy. If we are unable to provide our
retailers with adequate benefits, we may be unable to maintain or renew our contractual relationships on acceptable
terms causing our business, financial condition and results of operations to suffer.
We do a substantial amount of our business with certain retailers. For example, we have significant
relationships with Wal-Mart Stores, Inc. and McDonald’s USA, LLC (“McDonald’s USA”), which accounted
for approximately 19% and 10% of our consolidated revenue, respectively, for the year ended December 31, 2008.
Our relationship with Wal-Mart is governed by contracts that Wal-Mart generally may terminate with limited
notice. In addition, McDonald’s USA has the right to terminate its contract with us with respect to all of our kiosks
in a particular geographic market, with or without cause, on 90 days’ notice, in which event we have the option to
repurchase our kiosks on specified terms. Cancellation, adverse renegotiation of or other changes to these
relationships could seriously harm our business and reputation.
Events outside of our control, including the current economic crisis, has and could continue to negatively
affect customers’ use of our products and services.
Our customers’ use of many of our products and services is dependent on discretionary spending, which is
affected by, among other things, economic and political conditions, consumer confidence, interest and tax rates, and
financial and housing markets. With increased economic pressures recently affecting more and more of our
potential customers, we have been negatively impacted by more conservative purchasing tendencies over the last
half year and expect that fewer non-essential products and services will be purchased during the coming periods if
the economic downturn continues. For example, we have seen a significant decrease in revenues from our
entertainment business during 2008 as people have spent less and had less to spend. Further, many of our customers
have less discretionary income to transfer to relatives and other persons, often in foreign countries such as Mexico.
In addition, because our business relies in part on customers initially visiting retailers to purchase products and
services that are not necessarily our products and services, the fact that people are generally visiting retailers less
frequently and being more careful with their money when they do, is also negatively impacting our business.
Further, our ability to obtain funding, if and as needed, through equity issuances or loans, or otherwise meet our
current obligations to third parties could be adversely affected by the economic crisis. In addition, the ability of third
parties to honor their obligations to us could be negatively impacted, as retailers, suppliers and other parties deal
with the economic crisis as well. Finally, there may be consequences that will ultimately result from the current
economic crisis are not yet known, and any one or more of these unknown consequences (as well as those currently
being experienced) could potentially have a material adverse effect on our financial condition, operating results and
liquidity as well as our business generally.
There are many risks related to our DVD services business that may negatively impact our business.
The home video industry is highly competitive with many factors affecting our ability to profitably manage our
DVD services business. 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, greater or more appealing inventory, better financing, and better relationships with those in the movie
industry, than we have, including:
• traditional video retailers, like Blockbuster, and other local and regional video stores, and other DVD
kiosk businesses,
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