Television and movie content providers are at risk because Netflix (NFLX) and other entrants have disrupted physical media sales by streaming media.
Today there is a lot of competition and uncertainty as to which media platforms will survive or dominate in the future. Amid such competition investors must demand low valuations from viewing platforms.
Falling DVD Sales
Consumers in the U.S. cut their spending on home entertainment by 1.5% during the fourth quarter by spending fewer dollars on DVDs rentals and purchases.
According to the Digital Entertainment Group, the total spending for last quarter of 2012 decreased to $5.66 billion as compared to $5.74 billion during the same period last year. Total expenditure on DVDs was almost flat for 2012, rising only 0.2% $18 billion for 2012. In contrast, spending on subscription services, downloads and video on demand increased 25% to $1.49 billion during the quarter. Annual pending rose 28% between 2011 and 2012.
Studios have been counting digital sales, streaming services, and Blu-ray discs to counteract faltering purchases and rentals of traditional DVDs. During the quarter, the subscription DVD services and store rentals declined by 31% and 5.1% respectively. Also for 2012, the subscription DVD services and store rentals declined by 28% and 24% respectively. One bright spot was kiosk rental which increased 7.8% during the last quarter and 16% for the year. DVD spending continued to decline while expenditure on Blu-ray increased approximately 10% during the year. The total expenditure on packaged-media declined 5.5%.
Clearly packaged video media distribution is being disrupted fundamentally in the same way that packaged audio media distribution was disrupted by the internet over a decade ago
Coinstar (CSTR) is trading at a discount compared to other firms that provide a platform to distribute media:
EPS Growth Next 5 Years
Analysts have assigned Coinstar higher growth than more expensive peer companies. Is there a qualitative reason why it is so cheap?
There has been a management change. Coinstar appointed J. Scott Di Valerio, the company's Chief Financial Officer as Chief Executive Officer after the unexpected retirement of Paul Davis. Galen Smith, the Senior Vice President of finance will be appointed as the new Chief Financial Officer of the company. Di Valerio has served as the CFO of the company since 2010 and looked after the company's information technology and supply chain operations.
These managerial changes could come as a result of the commercial début of Redbox Instant in partnership with Verizon Communications . This service offers access to Redbox DVD rentals which has ability to stream movies online. It also plans to launch Rubi, a line of gourmet coffee vending machines.
According to Eric Wold, an analyst at B. Riley Caris said Davis's unexpected retirement would not lead to any change in its strategy. He also recommends 'buy' for the shares. Davis retired from the company after completing various deals such as partnership with Verizon Communications and the sale of underperforming businesses. During 2012, the company also expanded into the sale of tickets for concerts and sporting events.
According to Deborah Bevier, Chairman of Coinstar, "Scott's appointment as CEO is a direct result of the board's long-time focus on developing a deep management team and ensures that Coinstar will continue to benefit from strong leadership."
Coinstar expects that the company's fourth-quarter earnings would be at par or above its forecast of 62 cents to 77 cents a share. The revenue will be in the previously-announced range of $552 million to $602 million.
This positive change to guidance puts a different spin on a c-level change that might otherwise be an excuse to recognize losses for future earnings management. Thus, investors should not view this management change as a black mark on Coinstar.
At current low price multiples Coinstar is sufficiently cheap for a media provider. Investors should consider it based on its low valuation, good growth prospects, its streaming venture, and improved guidance.
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Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CSTR over the next 72 hours.