Internet Video

Verizon, Redbox Arm For Battle With Netflix

7/30/2012 12:01 AM Eastern

Netflix may be about to face a serious over-the-top
competitor from Verizon Communications and
Coinstar — although “Redbox Instant by Verizon”
clearly has an uphill battle ahead, as even Netflix’s
growth shows
signs of slowing.

Veri zon and
Coinstar have begun
testing the
streaming-video
portion of their
DVD-plus-online
video service designed to compete with Netflix,
and have tapped former FiOS executive Shawn
Strickland as the venture’s CEO.

The companies, which announced their partnership
in February, expect to commercially launch the
service in the second half of 2012. Verizon owns 65%
of the JV and Coinstar, Redbox’s parent company,
holds a 35% ownership stake.

Netflix has identified Amazon.com, Hulu Plus
and the pay TV industry’s TV Everywhere initiatives
as key competitors. Regarding the Verizon/
Redbox service, CEO Reed Hastings and chief financial officer David Wells wrote in a letter to
shareholders last week that it “will face a big challenge
to break into the top three of subscription
streaming services.”


NETFLIX SLOWS

In the second quarter, Netf lix gained 530,000
streaming subscribers in the U.S. to stand at
23.9 million — but that was well below its firstquarter
growth rate. Furthermore, Netflix expects
NBCUniversal ’s coverage of the 2012
London Olympic Games to have a “negative impact”
on U.S. viewing and subscriber signups for
the current quarter.

Meanwhile, Hastings and Wells gave a shout-out
to Comcast for its X1 interface, which they called
“impressive.”

“Our task is to keep raising the bar by operating
on Internet pace, so that by the time Comcast
broadly rolls out X1 over the coming years, we’ll be
another generation ahead in member-pleasing experiences,”
the executives said.

That’s in stark contrast to Netflix’s confrontational
posture toward Comcast just a few months
ago.

Netflix had complained to regulators and lawmakers
that the MSO’s previous 250-Gigabyte
usage cap would inhibit Internet video viewing
— but Comcast said in May that it would abandon
that policy in favor of usage-based pricing
models.

REDBOX INSTANT: CLOSED TEST

A Redbox spokeswoman said the alpha testing of
the product is under way and is “internal and invitation-
only. The company is testing
the streaming capabilities of the
product.” No other details, including
pricing and availability, are currently
being disclosed about Redbox
Instant by Verizon, which will combine
streaming video with access to
DVDs at Redbox’s 36,800 kiosks nationwide.

The Verizon-Redbox service will
off er subscription services that will
“leverage Verizon’s industry-wide relationships
with entertainment content
providers, its advanced cloud
computing technologies and stateof-
the-art IP network infrastructure
to distribute video on-demand
content to its customers,” according to the
companies.
In a February regulatory filing, Redbox said it
would initially invest $14 million in the joint venture,
implying that Verizon’s investment is approximately
$40 million.

TAKEAWAY

Verizon and Coinstar, looking
to profit from the growth of
over-the-top video, are teaming
up to challenge Netflix with a
hybrid DVD/Internet streaming
service.

STREAM TEAM


Senior managers of the Redbox Instant by Verizon venture include:

CEO Shawn Strickland, who previously
headed consumer strategy and planning for
Verizon Telecom and held management positions
with the telco’s FiOS TV initiative.

Chief marketing officer Amy Gibby, previously
vice president of marketing for Redbox.

Chief technology officer Jack Gallagher, formerly
executive director in Verizon’s technology office where he focused
on digital media retail services and technologies.

Product-line strategist and business manager Joe Ambeault, previously
director of product management at Verizon.

Source: Multichannel News research

October