Telco TV

Verizon, Coinstar Tag Team On Netflix Rival

2/06/2012 9:41 AM Eastern

In what could become a serious new competitor to Netflix, Verizon Communications and Coinstar announced the formation of a joint venture that will combine Redbox's new release DVD 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.

Redbox will make an initial capital contribution of $14 million in cash to the joint venture, implying that Verizon is sinking approximately $40 million into it (given that the agreement calls for each party to contribute on a pro-rata basis), according to an 8-K filing by Coinstar with the Securities and Exchange Commission.

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 Coinstar said they will announce additional brand and product information in the next few months.

Last month TechCrunch reported that Verizon would team up with Redbox on a service dubbed "Project Zoetrope" that will provide TV shows and movies available on multiple devices. The service is expected to launch in May 2012 with subscription plans that provide credits for watching a certain number of titles per month, according to TechCrunch.

"When you consider the core elements the parties bring to this venture -- our powerful brands; our national rental kiosk footprint; our anytime, anywhere network presence; and our mutual commitment to customer-focused innovation -- it's clear that Verizon and Redbox are a powerful entertainment team," Verizon consumer and mass business markets president Bob Mudge said in a statement.

Coinstar CEO Paul Davis said the JV with Verizon "will enable us to bring [customers] even more value by offering expanded content offerings and greater flexibility for how and when they enjoy entertainment."

Coinstar had been criticized by investors and analysts as failing to develop an Internet-streaming service that would challenge Netflix.

According to Davis, the Coinstar 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. We look forward to rolling out the shared benefits this venture will bring to consumers, retailers and shareholders."

The joint venture will initially have a board consisting of five managers, with Redbox appointing two and Verizon naming three of the managers, according to Coinstar's 8-K.

In addition to the agreement forming the limited liability company, Redbox is entering into a licensing arrangement allowing the JV to use the "Redbox" trademark as well as DVD and Blu-ray Disc rental rights from Redbox kiosks. By the same token, Verizon is entering into a licensing arrangement allowing for the use of the "Verizon" trademark by the joint venture, and an arrangement under which the telco will make available to the joint venture certain rights to video programming content delivered via broadband networks.