Redbox 2012 Annual Report Download - page 13

if we are unable to obtain or maintain favorable terms from our suppliers with respect to such matters as timely
movie access, copy depth, formats and product destruction, among others, or if the price of DVDs increases or
decreases generally or for certain titles, our library may become unbalanced and our margins may be adversely
affected. For example, we believe that in the fourth quarter of 2010, we purchased too many copies of DVDs for
our kiosks, and removed older titles too early, negatively impacting our revenues and gross margins.
Further, the delay in our ability to rent certain studios’ DVD titles pursuant to a delayed rental window may
negatively affect consumer satisfaction and demand, and we could lose consumers to our competitors because of
the timing of our library. In addition, if we are unable to comply with, or lack the necessary internal controls to
ensure appropriate documentation and tracking of our content library, we may, among other things, violate
certain of our studio licensing arrangements, be forced to pay a fee for unaccounted for DVDs and be susceptible
to risks of theft and misuse of property, any of which may negatively affect our margins in the Redbox business.
Any of these developments could have a material adverse effect on our business, financial condition and results
of operations.
For example, we have entered into licensing agreements with certain studios to provide delivery of their DVDs
by the “street date,” and with other studios to make DVDs available for rent 28 days or more after the street date.
Our business, financial condition and results of operations could be materially and adversely affected if these
agreements do not provide the expected benefits to us. For example, these agreements require us to license
minimum quantities of theatrical and direct-to-video DVDs for rental at our kiosks. If the titles or format
provided are not attractive to our consumers, we will be required to purchase too many copies of undesirable
titles or an undesirable format, possibly in substantial amounts, which could adversely affect our Redbox
business by decreasing consumer demand for offered DVD titles and consumer satisfaction with our services or
negatively impacting margins. If studios that do not have a delayed rental window elect to delay the general
release of DVDs to the rental market for significant periods after they are released for retail sales, demand for
rental of these titles may be adversely affected. If consumers choose to rent these DVD titles from our
competitors, purchase the DVD titles rather than rent from us, or find our DVD title selection unbalanced or
unappealing, our business, operating results and financial condition could be materially and adversely affected.
In addition, we have incurred, and may continue to incur, additional non-cash increases to operating expenses,
which are amortized over the terms of any such arrangements, that also could have a dilutive impact on our
stockholders, such as the issuance of equity under certain of our existing studio contracts or to the extent we enter
into similar arrangements with other movie studios in the future. Further, if some or all of these agreements prove
beneficial but are early terminated, we could be negatively impacted. Moreover, if we cannot maintain similar
arrangements in the future with these or other studios or distributors, or these arrangements do not provide the
expected benefits to us, our business could suffer.
If we cannot execute on our strategy and offer new automated retail products and services, including
through our New Ventures segment, our business could suffer.
Our strategy is based upon leveraging our core competencies in the automated retail space to provide the
consumer with convenience and value and to help retailers drive incremental traffic and revenue. To be
competitive, we need to develop, or otherwise provide, new product and service offerings that are accepted by
the market and establish third-party relationships necessary to develop and commercialize such product and
service offerings. We are exploring new businesses to enter, and new products and services to offer, including
through our New Ventures segment, however, the complexities and structures of these new businesses could
create conflicting priorities, constrain limited resources, and negatively impact our core businesses. We may use
our financial resources and managements time and focus to invest in other companies offering automated retail
services, such as our investment in ecoATM, a company that provides an automated eCycling station that
captures, tracks and recycles mobile devices, or we may seek to grow businesses organically, such as our RubiTM
coffee kiosk venture, or we may seek to offer new products on our current kiosks, such as video games or tickets
on the Redbox kiosk, or new Coin-to-Commerce products on our Coin kiosk. We may enter into joint ventures,
such as Redbox Instant by Verizon, through which we may expand our product offerings. Any new business
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