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How Much Longer Can Physical Media Hold On?

  +Follow July 30, 2013 8:56AM
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On July Outerwall Inc. ($OUTR), formerly Coinstar, Inc posted extremely disappointing earnings for the second quarter of 2013. . The shortfall wasn’t attributable to the namesake Coinstar change-to-cash machines, but rather the company’s DVD rental kiosk subsidiary, Redbox. First quarter earnings were even worse, with a 58 percent plunge in earnings. This crash coincided with the company’s name change, and a shift in focus away from physical media. Following the disappointing Q2 earnings report, the stock dropped over 13 percent.

The company is working on transitioning into other arenas, like kiosks that dispense coffee, but the sagging profits of their flagship Redbox business points to one undeniable trend: physical media is on its way out. Across the board, physical retailers are losing out to their digital counterparts.

DVDs

Redbox provided a less costly alternative to traditional rental outlets like Blockbuster, but they still couldn’t claw their way to profitability. On the surface, it would seem the company is doing well, as their numbers rise while Netflix Inc's (NFLX) physical media division withers. While Netflix's DVD business dropped 475,00 subscribers to hit 7.1 million in Q2 2013, sales rose for Redbox, with a 4.1 percent uptick. But this couldn’t offset rapid expansion. Redbox found that people are checking out fewer moves from kiosks, and for a shorter amount of time, further driving down profits.

Netflix isn't batting an eye. Their streaming business tacked on 675,000 subscribers to hit 29.8 million total. As streaming now accounts for over four times as many subscribers than mail digital is their undeniable bread and butter now.

Books

Borders went the way of the dodo in 2011. The remaining mega-bookstore Barnes and Noble Inc. (BKS) saw the writing on the wall and decided to try to get into the e-reader game. The move into hardware was a risky one, and it didn’t pay off: the company’s Nook has so far failed to take off.

While Nook was nowhere near as popular as Amazon’s (AMZN) Kindle, The big question is whether consumers really want an e-reader at all, when the preference for hardware favors tablets made by Samsung, Google Inc (GOOG) , and Apple Inc (AAPL) . And Barnes and Noble has practically zero chance of ever competing with those tech giants.

In Q2 2013 the company reported a net loss of $119 million, double the previous quarter.

Video Games

Video game seller GameStop Corp (GME) got some good news on June 20 when Microsoft  Corp (MSFT) announced they would relax rules for using previously owned games on the Xbox system. It was a capper on an uptick that had seen the company regains form. GameStop hit its high of 64.41 on December 17, 2007, and then crashed down to almost $21 a share by the end of 2008.

But since then, the retailer has exploded. It can’t be ignored that GameStop stock has surged this year, and is up a whopping 78.49 percent on the year. This can be attributed to two factors: one, Xbox’s backtracking on a previous commitment to curbing used-game sales and allowing freer trade of physical media; and the recession pushing more people into buying used games.

But despite the uptick, sales of physical media overall are dwindling for the company. The end of their 2012 fiscal year on January 2013 saw them report a drop in overall sales of 7 percent, while mobile and digital sales were up 21.2 percent.

The company cited a “tough video game market,” and had previously reported they were shuttering 200 stores.  

CDs

Perhaps no sector of physical media has gotten the press music has, as it was the first sector to experience significant online streaming and piracy. But Napster isn't what put Tower Records out of business; it was a general shift to digital that the physical music companies were too slow to pick up on. Again, Apple picked up the slack where physical retailers didn't, as their iTunes capitalized on the switch to digital.

Interestingly, some music retailers have been able to turn things around by profiting off one thing that definitely can't be transferred into digital: real estate. Trans World Entertainment (TWMC) , which owns the chain f.y.e, made a land deal in South Florida that netted the company a $22 million dollar profit. That same year, holiday sales dropped 17 percent from the year prior.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


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Results for OUTR
HotKeyTrading
28 Nov 14 00:30:14
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27 Nov 14 19:31:03
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Stefano
27 Nov 14 15:22:52
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27 Nov 14 14:31:40
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27 Nov 14 11:31:23
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27 Nov 14 10:01:05
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27 Nov 14 09:31:03
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Ticker Report
27 Nov 14 08:33:28
B. Riley Raises Outerwall Price Target to $62.00 $OUTR http://t.co/sbJrOEkrhY
HotKeyTrading
27 Nov 14 00:30:14
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26 Nov 14 19:31:02
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HotKeyTrading
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TipRanks
26 Nov 14 12:23:45
3-star analyst Michael Pachter from Wedbush reiterated a BUY on $OUTR. http://t.co/mQ0DKBmnND #NASDAQ #stocks #OUTR
Jason
26 Nov 14 12:06:07
u know its a bull market when even $OUTR is back near all time highs
Stock Signaling
26 Nov 14 11:31:23
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26 Nov 14 10:01:05
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Stock Signaling
26 Nov 14 09:31:06
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danrocks
26 Nov 14 08:58:59
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danrocks
26 Nov 14 08:58:36
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dough
26 Nov 14 07:33:15
down some on $OUTR idea. in small currently will wait for afternoon to see where it firms up before playing some MFK with it.
dough
26 Nov 14 07:05:34
working into some $OUTR swing long 6960
InterCooler
26 Nov 14 06:55:04
Outerwall Raised to “Outperform” at Northland Securities $OUTR http://t.co/6QIsKfk9oE
RickLejeune
26 Nov 14 05:05:22
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Kurt Grela
26 Nov 14 04:33:26
RT @jannarone: This may be the last thing saving DVDs from Apple - my story on the fate of the Redbox kiosk http://t.co/7ZIS4Un1od $OUTR $A…
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26 Nov 14 00:59:57
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FlashRatingsHOT
25 Nov 14 16:40:50
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25 Nov 14 14:52:39
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25 Nov 14 14:08:17
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Stock Signaling
25 Nov 14 13:02:47
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Stock Signaling
25 Nov 14 12:31:44
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retardedbear
25 Nov 14 11:45:37
long and flip, holding long, short and cover - all 3 strategies have made ppl $ in $outr- the only 1 that didn't work so far - holding short
John Jannarone
25 Nov 14 11:23:11
This may be the last thing saving DVDs from Apple - my story on the fate of the Redbox kiosk http://t.co/7ZIS4Un1od $OUTR $AAPL $AMZN $NFLX
NewsTalk
25 Nov 14 10:18:00
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Stock Signaling
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Ticker Report
25 Nov 14 09:14:31
Outerwall Upgraded by Northland Securities to “Outperform” $OUTR http://t.co/IMMWwEMyFl
Sleek Money
25 Nov 14 09:07:34
Outerwall Price Target Raised to $62.00 $OUTR http://t.co/MkRzriU9co
Livevol Community
25 Nov 14 09:00:06
HIGH PUT VOLU $AUQ 15263% $CEO 5059% $RNA 1641% $TIBX 1366% $DSW 775% $OUTR 758% $THC 687% $TSEM 614% http://t.co/gwzPxhFaBv
Media Sentiment
25 Nov 14 08:59:40
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OTPicks.com
25 Nov 14 08:57:18
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danrocks
25 Nov 14 08:56:03
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danrocks
25 Nov 14 08:55:42
$OUTR OUTR Stock is number 91 for the largest percentage gain out of 250 stocks. $OUTR OUTR is up +12.82% in the las http://t.co/JCOCtNmRvY
				
				
  +Follow July 30, 2013 8:56AM
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