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Verizon, Redbox Gun for Netflix

In the last few years, Verizon Communications
watched as Netflix subscribers steadily filled up broadband
pipes with gigabits of streaming video.

Now, the telco wants to beat Netflix at its own game —
and in the process, Verizon may also siphon off some cable
TV subscribers.
Verizon and Coinstar last week announced the formation of
a joint venture that will fuse together the latter’s Redbox DVD
kiosk rentals with a new video-on-demand streaming and
download service from the telco.

Verizon owns 65% of the JV, with Redbox holding a 35%
ownership share at the outset. The joint venture — as yet,
there’s no announced name for it — plans to launch its initial
products in the second half of 2012.

The Verizon-Redbox service will offer subscription services
that will “leverage Verizon’s industry-wide relationships with
entertainment content providers, its advanced cloud-computing
technologies and state-of-the-art IP network infrastructure
to distribute video on-demand content to its customers.”

Verizon and Redbox are mum on pricing and the scope of
content that is to be available via the over-the-top solution. But
at this point, Verizon isn’t ruling out adding live TV programming
to the would-be Netflix challenger — raising the specter
of a “virtual MSO” of sorts that could provide a cheap alternative
to cable and satellite TV services.

Asked whether the service would include live programming,
Verizon senior vice president of consumer product
management Eric Bruno said, “To be determined.” Any live
TV channels, though, probably wouldn’t replicate even a
low-end cable lineup, given the Netflix-range price points
Verizon and Redbox are trying to hit.

For the telco, the streaming-plus-DVD-kiosks service
(there won’t be any DVD-by-mail component) is an opportunity
to reach beyond its FiOS TV footprint, although Verizon
also will sell it to FiOS customers.

“From a FiOS perspective, we participate in about 30% of
the marketplace,” Bruno said. “We want to compete in 100%
of it.” As for whether such a service would cannibalize FiOS
TV by spurring “cord-cutting,” Bruno said he’s confident
that FiOS “will be able to hold its own.”

Meanwhile, there’s a question of why Verizon even needed a
DVD element at all. Verizon said it wants to provide a comprehensive
offering, and Redbox gives it new-release titles available
at some 35,000 vending machines across the U.S.

Another major consideration must have been Redbox’s retail
presence and name recognition, which should help provide
a marketing jump-start for the service. “Long-term, we
doubt Verizon really wants their streaming joint-venture to include
DVD kiosk rentals, but it was a way to get started with a
pre-existing user base (30 million plus active Redbox kiosks users),”
BTIG analyst Rich Greenfield wrote in a blog.

But Hollywood studios may be reluctant to play ball with
the Verizon-Redbox JV, Greenfield
said, because the $1.20-per-day kiosk
rentals may be eating into their newrelease
sales channels.

For Redbox, teaming up with
Verizon gives it an easy way to build
a bridge to a video-streaming future.
Investors and analysts have criticized
its delays in producing a competitor
to Netflix on this front.

According to Coinstar CEO Paul
Davis, the agreement with Verizon “is
the result of a deliberate and strategic
process to identify a partner who
shares our commitment to delivering
innovative solutions to consumers.”



Description: A hybrid service comprising DVD kiosks and Internet video
streaming and downloads to multiple devices, possibly to include live
TV programming.

Ownership: 65% owned by Verizon, 35% by Coinstar

Initial investment: $14 million from Coinstar; Verizon not disclosed

Availability: Second half of 2012

SOURCE: Company reports