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Analyst: DVD Rentals Will Drive Redbox’s Digital Transformation

Redbox’s move toward ad-supported VOD, free ad-supported streaming TV (FAST), and transactional VOD is enough to convince Wedbush Securities media analyst Michael Pachter to begin following the stock.

Redbox is in the midst of a reboot, transforming itself from a kiosk disc rental retailer to a multiplatform entertainment distributor. It’s a similar strategy to the one that erstwhile by-mail DVD rental pioneer Netflix employed 14 years ago in transitioning from physical media rentals to subscription streaming.

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Michael Pachter

While much of Wall Street turned its back on packaged media years ago, Pachter contends Redbox’s legacy kiosk business will continue to be a driver of the company’s revenue and digital aspirations. In fact, the analyst believes Redbox only needs to convert from 10% to 15% of its 40 million existing DVD customers to digital to reach more than $1 billion in annual revenue.

Specifically, Pachter contends Redbox’s user base consists primarily of value-conscious customers with inadequate access or disposable income to allow them to stock up on multiple SVOD services. With Redbox pushing free ad-supported streaming, is base users are more likely to recognize the brand and become consumers of advertising on the Redbox channel.

“All the while, these customers are likely to remain loyal to the Redbox [DVD] brand, and we expect the company to capture a reasonable share of consumption of its AVOD and VOD service offering,” Pachter wrote in a note.

For 2023, Redbox is guiding to total revenue of $1.1 billion, with 66% of revenue coming from DVD rentals and the remaining 33% of revenue coming from the growing digital segment. That compares with second-half 2021 projections with 89% of revenue coming from DVD, and 11% from AVOD.

“Redbox’s 39 million loyalty members can [be leveraged] to market digital products…and Redbox makes the transition from disc simple and in-expensive,” Pachter wrote.

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