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How Much Longer Can Physical Media Hold On?

  +Follow July 30, 2013 8:56AM
Tickers Mentioned:

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.


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.


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.  


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
BNK Invest
31 Oct 14 20:23:13
Outerwall Breaks Above 200-Day Moving Average - Bullish for $OUTR $XRT #stocks http://t.co/g4ZaU0favX
Bidness Etc
31 Oct 14 18:00:31
Outerwall released earnings for third quarter of its fiscal year 2014 http://t.co/YEdTcWbt1D $OUTR
Patrick Seitz
31 Oct 14 16:23:43
Redbox Q3 profit growth surprises, adds loyalty program. http://t.co/gea2Q47hWO $OUTR $NFLX $AMZN
Sam Sa
31 Oct 14 15:19:35
$OUTR still trading at a FCF yield of ~15%. Aggressively buying back shares and controlling expenses. Better comps ahead
31 Oct 14 15:10:02
Outerwall Inc. (OUTR) Jumps 11.82% on October 31 $OUTR http://t.co/pjrQ9XMI9F
Stock Relay
31 Oct 14 15:01:34
stockblaster14: Stock Alerts: Outerwall Inc (OUTR) 63.27 $OUTR Outerwall and http://t.co/mrmHVIXfku
Barron's 400 Index
31 Oct 14 14:42:51
The Barron's 400 powered ahead Friday, with Outerwall $OUTR and Wisdom Tree $WETF among the top gainers. http://t.co/aQwfVQibsa
Stock Relay
31 Oct 14 14:39:19
stockblaster14: Stock Alerts: Outerwall Inc (OUTR) 63.27 $OUTR Outerwall and http://t.co/aq5vU4wsNy
Victor E Villagomez
31 Oct 14 13:34:58
$OUTR up 11.82% today, told ya! Still long. Redbox gets better this time of year.
US Banking News
31 Oct 14 13:20:18
Outerwall Trading Up 9.6% After Better-Than-Expected Earnings $OUTR http://t.co/RXktulhkd1
31 Oct 14 13:12:00
RT @cvpayne: My stocks you were worried about $TQNT $FEYE $MELI $OUTR $FCEL act better Scorecard tonight on #Makingmoney PS:Grin & bear e…
31 Oct 14 13:08:23
Outerwall Trading Up 9.6% After Better-Than-Expected Earnings $OUTR http://t.co/w7vWuBpVsB
Charles V Payne
31 Oct 14 12:53:35
My stocks you were worried about $TQNT $FEYE $MELI $OUTR $FCEL act better Scorecard tonight on #Makingmoney PS:Grin & bear energy names RT
31 Oct 14 12:32:16
$outr nice!!cont>>
Sam Sa
31 Oct 14 12:20:10
Short squeeze continues in $OUTR
Alexander Morris
31 Oct 14 11:31:20
$OUTR: Exc 3MoHIGH=62.49, hits:4, Rng:18%, ch:+10.5%, FltBO+, tf:1111000, LowFlt:16M, HiPctSht[41%:8d], Gap+[+1.4%], DyVol:1.26M:1.4x:1.5x
Bidness Etc
31 Oct 14 10:44:40
#Outerwall Trades Higher On Better-Than-Expected Earnings http://t.co/BWKhIRMVdm $OUTR
John Stockman
31 Oct 14 10:33:24
$OUTR up 10% today, of course it's a month AFTER my calls expired
31 Oct 14 09:15:06
Top Market Movers Above $10: $WETF, $IMPV, $OPLK, $CODE, $SGMS, $CTRL, $MELI, $YRCW, $BBSI, $AVIV, $AFOP, $UVE, $CEVA, $LNKD, $OUTR …..
Alexander Morris
31 Oct 14 09:10:07
$OUTR: Exc 3MoHIGH=62.49, hits:1, Rng:18%, ch:+10.5%, 1NewHi, FltBO+, 19:6Accel+, allTFs+, LowFlt:16M, HiPctSht[41%:8d], Gap+[+1.4%]
Courtney Cols
31 Oct 14 07:55:10
RT @FluentInFinance: Stocks to watch today: $RBS $AVIV $HLT $SBUX $C $LNKD $GPRO $SAM $GOOG $OUTR $TPX $EXPE & more via @CNBC http://t.co/k…
Zainap Bentley
31 Oct 14 07:37:31
RT @FluentInFinance: Stocks to watch today: $RBS $AVIV $HLT $SBUX $C $LNKD $GPRO $SAM $GOOG $OUTR $TPX $EXPE & more via @CNBC http://t.co/k…
31 Oct 14 07:34:37
RT @FluentInFinance: Stocks to watch today: $RBS $AVIV $HLT $SBUX $C $LNKD $GPRO $SAM $GOOG $OUTR $TPX $EXPE & more via @CNBC http://t.co/k…
Proprietary Trading
31 Oct 14 07:15:40
Early Movers via @peterschack - http://t.co/Re6ZEgwIRH $HLT $NWL $SBUX $C $LNKD $GPRO $GRPN $EXPE $MYL $OUTR $TPX $TWTR #stocks #trading
31 Oct 14 07:15:19
Short Squeeze Alerts $GPRO $OUTR $AMBA $SRPT $XONE $SCTY $INVN $KERX $ZU http://t.co/vRTWxV5Spu
Media Sentiment
31 Oct 14 07:10:46
$OUTR received a new alert. Find out why at http://t.co/5udYd0Ofs6 #stocks #daytrading #trading #mkt #NYSE #NASDAQ #markets 271
BNK Invest
31 Oct 14 07:08:00
SPDR S&P Retail ETF -- Insider Buying Index Registering 12.7% $XRT $DSW $OUTR #etfs http://t.co/GSzG50Vyn5
31 Oct 14 07:07:55
SPDR S&P Retail ETF -- Insider Buying Index Registering 12.7% $XRT $DSW $OUTR #etfs: A look at the weighted un... http://t.co/FmkOlYw6qN
Wall St. Wolf
31 Oct 14 07:00:33
Stocks to watch today: $RBS $AVIV $HLT $SBUX $C $LNKD $GPRO $SAM $GOOG $OUTR $TPX $EXPE & more via @CNBC http://t.co/kOAcOFOZaN
Options Chris
31 Oct 14 06:46:08
A nice 147% on an $OUTR strangle. Love it when a stock opens flat on low volume after posting earnings.
Sam Sa
31 Oct 14 06:43:42
$OUTR +7.5%
Options Chris
31 Oct 14 06:24:55
$OUTR avg abs. value open to day h/l move after earnings is 5.2%. It has moved 9.1, 5, 2.2, 4.2, 6.3, 5.4, 4%. Liquidity could be an issue
31 Oct 14 06:10:04
Outerwall : and Points of Light Announce Inaugural Award to Drive Positive Change in Local Communities http://t.co/H8sUzMtQjc $OUTR
31 Oct 14 06:07:11
$OUTR - Outerwall and Points of Light Announce Inaugural Award to Drive Positive Change in Local Communities http://t.co/DosVX1MJhf
31 Oct 14 04:00:13
Outerwall : Announces 2014 Third Quarter Results; Operating Margins Increased Year-over-Year and Sequentially http://t.co/UhOVmGOILP $OUTR
30 Oct 14 16:06:26
Outerwall higher following mixed results, in-line guidance http://t.co/O4Q0RhNZBz $OUTR
Anthony Sotirhos
30 Oct 14 16:05:44
RT @samsa91: Still unconvinced on ecoATM. Mgmt needs to focus on Redbox and returning capital $OUTR
30 Oct 14 15:28:49
$OUTR Remakable Increase From Outerwall Following Top Line Lapse and Lesser Profit http://t.co/xeXwodMSmq
Ticker Report
30 Oct 14 14:44:50
Outerwall $OUTR Announces Quarterly Results http://t.co/Hk3rwSZbys
30 Oct 14 14:44:02
@JohnBonini Your estimate for $OUTR Q3 2014 has been scored – http://t.co/UiP5gXPhIE
30 Oct 14 14:43:59
@TrembFredrick Your estimate for $OUTR Q3 2014 has been scored – http://t.co/srK4yAm1Da
30 Oct 14 14:43:50
@LDrogen Your estimate for $OUTR Q3 2014 has been scored – http://t.co/5PJcv5ao2k
30 Oct 14 14:43:07
@kgajjala $OUTR just reported earnings for Q3 2014 – http://t.co/vazRNz1fCE
30 Oct 14 14:43:07
@adenduluri $OUTR just reported earnings for Q3 2014 – http://t.co/vazRNz1fCE
30 Oct 14 14:43:07
@golfwinch $OUTR just reported earnings for Q3 2014 – http://t.co/vazRNz1fCE
30 Oct 14 14:42:20
The most accurate $OUTR estimate is from dovherzog, beating 13 other analysts and the Wall Street Consensus - http://t.co/9XXkA7767q
30 Oct 14 14:42:18
$OUTR beats the Estimize EPS Consensus by 24c and the Estimize Revenue Consensus by $0.74M - http://t.co/MjNkaHC6Aq
30 Oct 14 14:42:16
$OUTR reports FQ3 earnings of $1.44 EPS and $552.90M Revs - http://t.co/uEHFzmyiwM
Large Void Bot
30 Oct 14 14:30:01
Conference call: (17:30): $FLR, $GMED, $NUVA, $OUTR
Sam Sa
30 Oct 14 14:14:44
Pricing by movie "age" should be looked at as well $OUTR
  +Follow July 30, 2013 8:56AM



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