Redbox 2014 Annual Report Download - page 14

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Our ecoATM business faces competition from companies whose primary business consists of the purchase of used
electronics, including online retailers and web sites such as Gazelle, as well as brick and mortar stores which buy back used
electronics. The business also faces competition from companies in other businesses who also have buyback programs, such as
GameStop, Best Buy, Target, Apple, AT&T, Verizon, T-Mobile and Sprint. These competitors may have significantly more
resources than we do or offer their customers a higher price or more convenient offering than we do for the same item. Both the
proliferation of such programs and the perceived value to consumers provided by such programs could materially and adversely
affect our business and results of operations.
There are many risks related to our Redbox business that may negatively impact our business.
The home video industry is highly competitive with many factors affecting our ability to profitably manage our
Redbox business. We have invested, and plan to continue to invest, substantially to establish and maintain our infrastructure of
Redbox kiosks in the U.S. Because we have now substantially completed our U.S. build-out of Redbox kiosks, future growth of
our Redbox business in the U.S. will depend substantially upon growth in same store sales. As a result, we expect our Redbox
business to grow more slowly in the future, compared with our historical experience. In addition, the home video distribution
market is rapidly evolving as newer technologies and distribution channels compete for market share, and we face an expected
secular decline in the physical rental market. If it does, our business, operating results and financial condition could be
materially and adversely affected. Some of the risks that could negatively impact our participation in this industry include:
• Increased availability of digital movie content and changes in consumer content delivery and viewing options and
preferences, including increased use of online streaming, video-on-demand, subscription video-on-demand and
time- and place-shifting technologies
• Decreased quantity and quality of movie content availability for DVD distribution due to changes in quantity of
new releases by studios, movie content failing to appeal to consumers’ tastes, increased focus on digital sales and
rentals, and other general industry-related factors, including financial disruptions, and labor conflicts;
• Due to arrangements with certain studios that provide content on a delayed basis, the availability of some new
releases in our kiosks may shift to times when consumers are relatively less likely to rent movies, or may be in
genres that are off seasonally, such as a holiday movie unavailable until January; and
• Decreased costs for consumers to purchase or receive movie content, including less expensive DVDs, more
aggressive competitor pricing strategies and piracy.
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.
The termination, non-renewal or renegotiation on materially adverse terms of our contracts or relationships with one or
more of our significant retailers, studios or game publishers 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 partners
in profitable locations. Certain contract provisions with our partners vary, including product and service offerings, the service
fees we are committed to pay, and the ability to cancel the contract upon notice after a certain period of time. For Redbox and
Coinstar, we typically enter multi-year kiosk installation agreements that automatically renew until we or the retailer gives
notice of termination. Our typical ecoATM agreements with mall operators allow the operators to terminate for convenience
with minimal notice. We strive to provide direct and indirect benefits to our partners that are superior to, or competitive with,
other providers or systems or alternative uses of the floor space that our kiosks occupy. If we are unable to provide them 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., Walgreen Co., and The Kroger Company, which accounted for approximately 15.5%, 13.7%, and 9.7%
of our consolidated revenue from continuing operations, respectively, during 2014. In addition, our ecoATM business is largely
concentrated within the largest mall operators in the United States. Although we have had, and expect to continue to have, a
successful relationship with these partners, changes to these relationships will continue to occur both in the long- and short-
term, some of which could adversely affect our business and reputation. For example, our Redbox, Coinstar and ecoATM
relationship with Walmart is governed by contracts that provide either party the right to terminate the contracts in their entirety,
or as to any store serviced by the contracts, with or without cause, on as little as 90 days’ notice. Cancellation, adverse
renegotiation of or other changes to these relationships could seriously harm our business and reputation.