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After Blockbuster Bust, Redbox to Reap $300 Mil Windfall: Analyst

Dish's closure of 300 Blockbuster stores should be boon to DVD kiosk operator

Blockbuster’s pain will be Redbox’s gain.

DVD kiosk operator Redbox stands to pull in at least $200 million to $300 million in additional annual revenue after Dish Network shuts down Blockbuster’s approximately 300 remaining U.S. stores and DVD-by-mail business next January, according to B. Riley & Co. senior analyst Eric Wold.

Blockbuster’s revenue was on an annual run rate of $400 million to $500 million, Wold estimates. That would translate into upwards of $300 million or more in DVD rental revenue coming to Redbox and “could provide a nice traffic tailwind for the start of the new year,” the analyst wrote.

The additional revenue would be on top of Redbox’s projected 2014 sales of $2.1 billion, according to Wold. Parent company Outerwall reported $587.4 million in revenue for the third quarter of 2013, up 7%, with net income more than doubling to $82.7 million.

“Even though Blockbuster’s disc rental operations have been struggling for years as consumers have gravitated towards both Redbox kiosks as well as various digital rental/subscription options, the company still generated meaningful revenues and serves a customer base that prefers the physical format,” Wold wrote.

SEE ALSO: Blockbuster to Close All Remaining U.S. Stores

Netflix also has seen its DVD-by-mail biz decline over the last several years: It had 7.15 million DVD subscribers as of the end of September, down from 8.61 million a year earlier. But Netflix, too, could benefit from new customers signing up for streaming and/or DVD subscriptions with the Blockbuster shutdown.

Shares of Outerwall inched up 1% on Wednesday on the Blockbuster announcement, to close at $68.07 per share. The stock was down slightly Thursday to $67.91 per share amid a broader market dip.

Separately, Wold noted that Redbox appears on the verge of launching its Redbox Rewards loyalty program, citing an update for the Redbox iPhone app that adds the rewards program and a signup page on the company’s website. The loyalty program gives customers one free DVD rental for every 10 paid rentals.

“Given that loyalty programs have been an effective way to drive (and retain) traffic for retailers, we view this as a solid complement to the CRM (customer-relationship management) currently being implemented,” the analyst wrote.

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