Redbox 2012 Annual Report Download - page 21

key personnel. Parties making these types of claims may be able to obtain injunctive or other equitable relief,
which could effectively block or impair our ability to provide our DVD or coin-counting products and services or
other new products and services in the United States or abroad. Such claims could also result in an award of
substantial damages. If third parties have, or obtain, proprietary rights that our products or services infringe, we
may be unable to obtain necessary licenses from others at a reasonable cost or at all. In addition, if we instigate
litigation to enforce our patents or protect our other proprietary rights, or to determine the validity and scope of
other parties’ proprietary rights, such litigation could cause us to spend significant financial and management
resources. We also rely on trademarks, copyrights, trade secrets and other intellectual property to develop and
maintain our competitive position. Although we protect our intellectual property in part by confidentiality and
other agreements with our employees, consultants, vendors and corporate partners, these parties may breach
these agreements. We may have inadequate remedies for any such breach and our trade secrets may otherwise
become known or be discovered independently by our competitors. The failure to protect our intellectual
property rights effectively or to avoid infringing the intellectual property rights of others, as well as unfavorable
rulings or settlements, could seriously harm our business, financial condition and results of operations.
We may be unable to attract new retailers, broaden current retailer relationships, and penetrate new
markets and distribution channels.
In order to increase our Redbox, coin-counting and other kiosk installations, we need to attract new retailers,
broaden relationships with current retailers, and develop operational efficiencies that make it feasible for us to
penetrate lower density markets or new distribution channels, such as coin-counting kiosks in banks and credit
unions. We may be unable to attract retailers or drive down costs relating to the manufacture, installation or
servicing of our kiosks 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 financial performance could be adversely affected.
Payment of increased fees to retailers or other third party service providers could negatively affect our
business results.
We face ongoing pricing pressure from our retailers to increase the service fees we pay to them on our products
and services or to make other financial concessions to win or retain their business. If we are unable to respond
effectively to ongoing pricing-related pressures, we may fail to win or retain certain accounts. Our fee
arrangements are based on our evaluation of unique factors with each retailer, such as total revenue, long-term,
non-cancelable contracts, installation of our kiosks in high-traffic, geographic 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. In addition, we accept payment for DVD and game rentals through debit and credit card transactions.
For these payments, we pay interchange and other fees, which have increased and may increase further over time.
Further, because Redbox processes millions of small dollar amount transactions, and interchange fees represent a
larger percentage of card processing costs compared to a typical retailer, we are relatively more susceptible to
any fee increase. When interchange or other fees increase, it generally raises our operating costs and lowers our
profit margins or requires that we charge our customers more for our products and services.
Events outside of our control, including the current economic environment, have negatively affected, and
could continue to negatively affect, consumers’ use of our products and services.
Our consumers’ 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 economic uncertainty still affecting potential consumers, we may be
impacted by more conservative purchasing tendencies with fewer non-essential products and services purchases
during the coming periods if the current economic environment continues. In addition, because our business
relies in part on consumers initially visiting retailers to purchase products and services that are not necessarily
our products and services, if consumers are visiting retailers less frequently and being more careful with their
money when they do, these tendencies may also negatively impact our business.
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