These days, consumers demand greater flexibility and control in a variety of transactions. A shining star in a growing industry, this company pins its success on giving the buying public what they want when they want it.

A growing number of consumers are turning to the Internet for shopping and entertainment, but Coinstar (NSDQ: CSTR) has continued to thrive despite its low-tech approach to business.

Recalling the automats of yesteryear, the company focuses on so-called “Fourth Wall” solutions that enable stores to squeeze every last penny from every inch of available retail space. Its self-service kiosks allow shoppers to cash in piles of loose change, rent DVDs or add money to stored value cards.

Consumers appreciate the convenience of these kiosks, while Coinstar and the retailer, which typically receives a percentage of revenues generated by machines on its premises, enjoy a steady revenue stream.

As depicted in “Revenue Mix,” Redbox DVD rental kiosks now generate more than 40 percent of the company’s revenues. That business could grow substantially over the next year.

Coinstar cut deals with Paramount Pictures and Sony Pictures that allow the company to purchase DVDs in bulk from wholesalers at reduced prices and offer these movies to consumers as soon as they’re released on video.

These deals aren’t without risk: Both include clauses that allow the studios to back out after the first and second years of the agreement if the distribution arrangements adversely affect DVD sales. But past industry studies have found that making films available for immediate rental usually shaves just 1 to 2 percent from DVD sales; it’s unlikely that either studio will abrogate the agreement.

Coinstar will benefit immediately from these deals, as access to in-demand titles will drive traffic at kiosks. Over the long term, the agreements will reduce operating costs.

Coinstar’s Redbox movie rental franchise also recently won a partial, though still important, legal victory against Universal Pictures.

Universal had directed its distributors to withhold DVDs from Redbox, arguing that $1-a-night rentals hurt sales. Redbox hauled the studio into court on antitrust claims, and a federal judge recently cleared the suit to proceed.

If Redbox prevails, the decision would not only require Universal to make its titles available, but would also provide leverage against other reluctant studios.

Meanwhile, outside the court room, Coinstar’s growth continues unabated. The firm plans to introduce Redbox kiosks to 2,000 Kroger (NYSE: KR) supermarkets and is testing price increases in select markets.

The company is also working to drive traffic to its eponymous coin counting machines.

Company research has shown that some consumers resist using the machines because of the service fee, typically around 9 percent of the value counted. But Coinstar has long offered a fee-free option, foregoing the service charge if consumers opt to add the money to a value-stored card offered by the retailer. And in that event, the retailer picks up the fee.

Coinstar also recently cut a deal with Stored Value Solutions to offer prepaid MasterCard (NYSE: MA) gift cards, which can be used anywhere Debit MasterCard is accepted, giving consumers a much wider range of choice.

With just a 14 percent share of the video rental market and about a third of the coin counting market, Coinstar still has plenty of room to grow. It continues to make inroads on the West Coast and in the Midwest. Management has also hinted that the company may offload less-profitable business lines such as its amusement vending machines.

WHY TO BUY
COINSTAR, INC (NSDQ: CSTR, $32.46)

• Low-cost provider in its market

• Ready access to capital to fund further expansion

• Rapid volume growth in DVD rentals