Redbox, Verizon Announce Streaming Joint Venture: Could Spell Trouble for Netflix

on February 06 2012 12:12 PM
Redbox
Redbox, the movie rental service, has announced a new joint venture with Verizon through which the companies will offer a streaming video service. The new streaming video service will launch in the second half of 2012. Customers must subscribe to the service in order to stream video, but details about the price scale have not been released. Reuters

Redbox announced plans Monday to introduce a online platform to augment its DVD rental service, making it a new challenger in a tight online streaming amrket.

New York-based Verizon Communications and Bellevue, Wash.-based Coinstar, Redbox's parent, announced a joint venture to begin streaming content online.in the second half of 2012.

Consumers rely on Redbox for the latest new release movies at a great value, and our joint venture with Verizon will enable us to bring them even more value by offering expanded content offerings and greater flexibility for how and when they enjoy entertainment, Coinstar CEO Paul Davis said. This alliance is the result of a deliberate and strategic process to identify a partner who shares our commitment to delivering innovative solutions to our customers.

Verizon will own  65 percent of the venture, while Redbox will own 35 percent. The companies didn't announce details of the plan, or even its name, noting more information would be announced in the coming months.

Shares of Netflix, based in Los Gatos, Calif., rose 7 cents, to $126.50, in midday trading.

Redbox, with over 28,000 kiosks across the U.S., has talked about introducing a streaming service since late 2010. Analysts believed Redbox needed to introduce a streaming service in order to challenge companies such as Netflix, the dominant player in the streaming market.

Redbox has done a very good job appealing to a niche market, Shahid Khan, chairman of software firm Mediamorph said in an interview before the announcement. But if it can't take advantage of a wide range of platforms, it won't succeed.

Netflix has offered streaming since 2007, while others such as Seattle-based Amazon have introduced streaming within the past year.

The deal is the first time a major cable provider has entered into the streaming realm. Verizon, which provides TV service as well as its FiOS service to millions of homes, will be able to gain a lot of customer data from the deal given Redbox's core customer base, Janney Montgomery Scott analyst Tony Wible said in an interview.

But the deal also allows Verizon to have more control over services used on its platforms, he said.

Companies like Netflix have benefited from Verizon's ecosystem, Wible said, noting consumers watch streaming content on phones Verizon provides and on Verizon's wireless networks. This could be an opportunity for a company like Verizon to cut out the middle man and monetize on the content.

Don't expect this to be the last cable or satellite provider to aggressively go after streaming, Wible said. Rivals, such as Dish Network, given its 2011 acquisition of Blockbuster and interest in network-owned Hulu, could also jump on the streaming bandwagon.

No one wants to play defense in [the streaming service] world, Wible said.

The deal could spell trouble for streaming sites such as Netflix. The joint-venture between Verizon and Redbox is similiar to the 1990s, where then-small companies such as Prodigy and AOL began offering Internet access, said analyst Jeff Kagan. But eventually, large telecommunications companies began offering high-speed Internet service, forcing companies like Prodigy out of business and putting AOL in a near-death scenario.

Large companies like Verizon may find they can jump into the wireless space pretty easily, and that could spell big trouble for Netflix in the future, Kagan said.

This could be the beginning of the end for Netflix, he said, but noted he couldn't make a more pointed prediction until more information is released regarding Redbox's streaming plans.

Wible believes Redbox will initially focus on the domestic market but could try to make a presence overseas.

Coinstar will report its fourth quarter earnings Monday after the market close. Coinstar shares rose 43 cents to $50.09 in midday trading, while those of Verizon rose 11 cents to $37.95.