Coinstar (CSTR) just announced big news for its Redbox brand. Redbox will begin selling tickets to live events and local venues (such as sporting events, concerts, cultural events and family-friendly attractions) and Redbox will only be charging customers $1 per ticket as a service charge. Coinstar is rolling out the service in Philadelphia first, and will be offering consumers tickets to a variety of events including a Carrie Underwood concert, NASCAR events, the Philadelphia Film Festival, and Villanova athletic events beginning this month. Redbox plans to launch its ticketing service in Los Angeles early next year and will roll out to other major cities where there are opportunities to expand.
Why is this big news for long-term shareholders of Coinstar?
Ticketmaster is due for some real competition, and Redbox is positioned to be the low-cost provider in ticket sales
Ticketmaster has a near monopoly on live event ticket sales. They charge ridiculous amounts in fees and consumers can spend 50% or more of the ticket price in fees such as Service Charges, Building Facility Charges, Processing Charges, Shipping Charges, E-Ticket Convenience Charges, and Will Call Charges. Consumers are fed up with these fees, and Redbox is positioning itself to be the low-cost provider in the ticket distribution business. Considering Redbox's website, email list, mobile applications and convenient locations, customers will have a variety of ways to purchase and receive tickets (cheaply). Ticketmaster (and its parent company Live Nation (LYV)) currently have many exclusive arrangements with venues to provide tickets, but when those arrangements expire, Redbox will be there to pick up market share. The biggest risk for Redbox in this venture is that Live Nation's role as a promoter of concerts and owner of many concert venues shuts Redbox out of the most interesting live events. However, as the Press Release above demonstrates, Redbox should still have access to some prominent events and venues that are not tied to Live Nation.
Fears about Redbox's longevity should be alleviated
As I had laid out in a previous article, the case against Coinstar and Redbox relies on the premise that physical movies will be extinct soon, and the Redbox kiosks will be useless. This new ticket business will be able to leverage the existing Redbox brand image as the value name in entertainment and keep revenues per Redbox kiosk high even as physical media demand fades. The ticket business requires very little additional investment by Redbox but may provide a very significant boost to revenues in the long run as the ticket distribution business moves from Ticketmaster to Redbox.
Initiative shows management is innovative and resourceful
Coinstar's management is not sitting around and waiting for Redbox to become extinct. They are building a very strong brand name that reflects value, entertainment and convenience. They are positioning Redbox to mean 1) cheapest option to rent new movies, 2) cheapest and most convenient place to buy tickets to local entertainment options, and 3) best value in streaming video (coming soon courtesy of Redbox Instant).
Management has not yet provided projections as to how much incremental revenue might be brought in through the live event ticketing business. But considering that Ticketmaster generated $1.2 billion of revenue from its ticketing services along (excluding the face value of the tickets) and sold over 141 million tickets in 2011, the market opportunity for Redbox is large. In addition to taking share from Ticketmaster, Redbox has a great opportunity to distribute tickets for local venues/organizations that might be looking for a cheap way to market their events (small bars, local theatres, zoos, aquariums, etc).
Investors should buy Coinstar now for long term gains and avoid Live Nation
Coinstar stock is very cheap right now considering its past track record for growth, profits, and its bright prospects for new business such as Redbox Tickets, the streaming joint venture with Verizon, and Rubi coffee kiosks. Coinstar currently trades at a forward P/E ratio of 9.2, a Price to Book Ratio of 2.36, and has over $10 of cash per share. These metrics show that shares of Coinstar have priced in a slow growth rate for the Redbox division due to increased saturation of Redbox kiosks as well as the perceived migration from DVD to streaming video. The new ticketing business gives Redbox a strong new revenue driver that can be rolled out at existing Redbox locations with minimal new infrastructure costs. Redbox Tickets is a fantastic new initiative for Coinstar and should add to both revenues and earnings in the years ahead. Ticketmaster and Live Nation will have a hard time holding onto ticket distribution for venues that they do not control unless they significantly reduce their service fees. Either way, Ticketmaster and Live Nation's revenue will suffer from this new competition.