Private equity firm buys Redbox parent Outerwall for $1.6B

By Jim O'Neill on Jul 25 2016 at 12:00 PM

Outerwall, which is parent to the Redbox movie rental service, is being acquired by Apollo Global Management for $1.6 billion, about $52 a share. Apollo plans to take the firm private.

Redbox, which rents DVDs to consumers through its network of more than 40,000 rental kiosks in the U.S., United Kingdom and Ireland, has been struggling as more consumers eschew digital media and opt for streaming or downloadable movies and TV shows instead. It also operated 21,000 Coinstar kiosks.

The company has experienced declining revenues from its rental business for the past year and has seen its share price plummet more than 50% during that time, despite sales of more than $2 billion. Outerwall has been weighing a sale since March, when it hired Morgan Stanley to advise it.

"Outerwall's board of directors has undertaken a comprehensive review of a wide range of strategic and financial alternatives to maximize value for all Outerwall shareholders. We are pleased to reach this agreement, which follows a robust process and provides an immediate and substantial cash premium to our shareholders," Erik Prusch, Outerwall's CEO, said Monday.

The deal is expected to close in the third quarter of 2016.

"Outerwall is a dynamic customer-focused business that delivers superior kiosk experiences that delight consumers and generate value for its retailer partners," Apollo partner David Sambur said. Apollo has some $173 billion in assets under its management including consumer, retail, satellite, wireless and media businesses.

But, no news on future of Redbox Digital beta

Redbox last week quietly rolled out a beta version of a rental and electronic sell through movie streaming service for use on iPads.

The app allows users to access the Redbox catalog for downloads or streams.

Variety reported that Outerwall said the app was a test of  “a potential new transactional digital VOD and EST offering, with a small subset of our customers, designed to complement our core kiosk rental business. As we test and learn from our customers, we will make evaluations that determine any future course of action.”

Customers currently pay about $1.50 for a physical rental from a Redbox kiosk, but no word on the cost to stream a movie or to buy one.

Redbox teamed up with Verizon back in 2012 as the telco looked for ways to compete with Netflix and other nascent streamers, launching Redbox Instant in March 2013. It was billed as a nationwide service that would “create a new choice for quality- and value-conscious consumers seeking a simple and affordable way to access the video entertainment they crave."

It was, in a word, a flop.

The jury-rigged Netflix killer simply never caught on and Verizon dissolved the partnership in Oct. 2014. Interestingly, Verizon had been rumored in 2011 to be in talks with Netflix…

Will Redbox be able to pull it off this time around?

Maybe. Um, maybe not.

While Verizon’s attempt at starting a Netflix rival fizzled, it should be noted that not all operator efforts at Netflix challenging have failed. At least, not north of the boarder.

Shaw Communications and Rogers Communications continue to grow their own nationwide streaming offering, shomi. And, Bell Media is still expanding its SVOD service, CraveTV, which it opened up to all comers in January.

Of course, neither service has had great success in eroding Netflix’s subscriber base in Canada.

Solutions Research Group reported that, as of April 2016, 46% of Canadians subscribe to Netflix, about 5.2 million customers, up from 4.1 million in June 2015.

CraveTV and shomi, meanwhile, have a combined 740,000 subs, according to SRG, though both just launched in 2014 as pay-TV-subscriber-only betas.

Stay tuned.                                                                                      

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