Verizon, Redbox Gun for Netflix

Telco and DVD Kiosk Player Plot Hybrid Video Service

By Todd Spangler -- Multichannel News, 2/13/2012 12:01:00 AM

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.”

STREAM TEAM

DETAILS ON THE VERIZON-REDBOX JOINT VENTURE:

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