Coinstar Is Dead: Long Live Outerwall

Coinstar Is Dead: Long Live Outerwall

Wall Street won't have Coinstar to kick around anymore.

The kiosk operator began trading as Outerwall today, ringing the exchange's opening bell and announcing a significant acquisition.

Shareholders approved the new moniker last week.

It wasn't a surprise to see Coinstar go for a name change. Its namesake machines that exchange loose change for gift cards was accounting for just 11% of the company's revenue. The real surprise is that it didn't go with Redbox.

The company's fleet of machines that crank out DVD, Blu-ray, and video game rentals accounts for the lion's share of its business. At a time when Blockbuster has been closing down stores and Netflix has been emphasizing its streaming services as its disc-based platform shrinks, Redbox has been holding its own. Redbox revenue rose 1% in its latest quarter. That may not seem all that impressive, but consider that Netflix's DVD revenue declined by 24% during the same period.

However, as optical discs continue to give way to digital delivery, it's quite possible that Redbox as a corporate name in a few years would seem as silly and outdated as Coinstar does today.

Outerwall is a commitment to the company's growing portfolio of kiosks that operate on the outer wall of storefronts. The new strategy is also emphasizing kiosks that won't give way to the digital media migration. One of its smaller businesses is Rubi coffee dispensers. You can't download a shot of java.

Outerwall is also making an aggressive play in the used gear resale market with this morning's $350 million acquisition of ecoATM.

Despite the name, this isn't some solar-powered bank machine. It's more along the lines of an unmanned pawnshop for electronics. Folks can sell their phones or MP3 players -- in any condition -- through the automated stations that inspect the state of the device before firing back a price.

Instead of having its Redbox business disrupted by Netflix, it may find itself butting heads against Gazelle and consumer electronics stores that buy back used hardware, but it should be able to use its many Redbox merchant connections to quickly expand the reach of ecoATM.

It's hard to get excited about Coinstar and even Redbox these days, but if Outerwall can make itself digital-proof by turning to coffee and electronics as growth outlets, it may be a bright road for Outerwall after all.

Outerwall knows that retail is changing
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Longtime Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends and owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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