Can Coinstar (Nasdaq:CSTR) Survive with Current Business Model?

Coinstar (Nasdaq:CSTR) appears to be in major trouble, as another disruptor is itself being disrupted, and their current business model very questionable as to whether it is sustainable in the long term.

No matter what company it is, those with heavy exposure to a physical disk are going to have trouble once online video streaming becomes the preferred media content delivery system of the majority of consumers.

Even Netflix (Nasdaq:NFLX) knows its best days are behind them if video streaming takes off before they find their own solution and offering in the segment.

Digital delivery for media is the future of the industry, and anyone that doesn't have that as their major focus will eventually fail to grow if they don't quickly and efficiently adapt to that reality.

Coinstar, after their dismal last quarter, and their equally dismal guidance for the next quarter, mentioned in the report they are looking at rolling out a streaming video service, but they didn't seem to have any urgency when they said it, but are rather still trying to figure out how to succeed with their disks and the existing business model entered into with Hollywood.

For example, the 28-day delay isn't working, and the positive outlook from Blu-ray isn't what it was expected to be.

Apparently, as far as the deal with Hollywood goes, consumers aren't being convinced to wait to see a movie 28 days after the DVD is released; although you wouldn't know it from falling DVD sales. People are of course buying copies and sharing them with their friends and family.

So even at one dollar it appears the business model of Coinstar isn't compelling to consumers, at least in a way they can grow with it.

All of this isn't to say Coinstar and others like them won't survive for awhile (some people will always prefer a physical disk), it's to say there are no catalysts that will drive growth.

The hype about Blu-Ray isn't proving to be reliable either, as disk rentals are far below estimates.

There is only one growth trajectory for Coinstar, and that is via video streaming. There will be a core base of physical disk users they can count upon, but growth is with video streaming.

In Coinstar's earnings report, all they had to say about that vital element of their business model is they're "having detailed discussions with a number of partners."

With Netflix and Amazon.com (NASDAQ:AMZN) ready to expand and enlarge their video streaming offerings, Coinstar needs to get far beyond the stage of "detailed discussions" and roll something out.

Even there, as with Netflix, the problem is video streaming offers no differentiation at this point, and those with the biggest pockets will always win when it comes to a commodity service or product where price is the determining factor of acceptance by consumers.

Media is getting disrupted again, and any media content delivery company without digital streaming as their major business model, isn't going to have a very pleasant future, as Netflix has already come to understand, and why they're struggling to expand and enlarge that part of their business, as they move away from delivering disks to the home as their core business.

Coinstar must to the same with their business if they are to survive and thrive. Otherwise their name will become synonymous with Borders or Blockbuster. All of this won't happen overnight, but the handwriting is definitely on the wall, even as they are thinking of rolling out video games in their outlets, after a successful test. They're ultimately going to be streamed as well.

Coinstar closed Thursday at $44.24, gaining $1.20, or 2.79 percent. After weak guidance in their earnings report for the first quarter, shares in after-hours trading plummeted to $39.70, falling $4.54, or 10.26 percent.