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Issue Date: Vol. 52, No. 2, February 2012, Posted On: 2/7/2012

Verizon-Redbox Joint Venture Challenges Netflix

by Staff Reporter
Verizon Communications, Coinstar Inc., Redbox, Verizon-Redbox joint venture, Netflix, vending, vending machine, DVD rental kiosk, movie streaming, automated retailing, Paul Davis, NCR Corp., Blockbuster Video

NEW YORK CITY -- Verizon Communications Inc. and Coinstar Inc.'s Redbox unit have formed a joint venture to sell video services to compete with video rental giant Netflix Inc. The venture will combine the Redbox DVD rental kiosk business with Internet video offerings from Verizon, including mobile offerings, in the second half of the year.

The joint venture is a limited liability company with Verizon holding a 65% ownership share and Redbox holding the remaining share at the outset.

The new Verizon-Redbox service's price will reportedly start from around $6 a month for movie streaming and one DVD rental at a time from Redbox vending machines, according to a Reuter's story. Netflix's pricing currently starts at $7.99 for either streaming only or a single DVD by mail. To get both streaming and DVD rental packages, prices start at $15.98.

"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," said Bob Mudge, president of Verizon consumer and mass business markets.

However, many analysts agree that their success in competing with Netflix, and other online rivals like Amazon.com and Hulu Plus, not only depends on the price of the service, but also on the amount of available content. These analysts say the joint venture will not match the $1 billion a year investment in new content made by Netflix.

Coinstar sees online content delivery as a vital expansion beyond the 200 recent movie releases stocked in kiosks at any given time, Coinstar chief executive Paul Davis said. At the same time, Coinstar seems committed to expanding its vending program and location base. It announced on Feb. 6, the same day the Verizon-Redbox alliance was revealed, that it will buy rival NCR Corp.'s machines and video inventory for up to $100 million. The deal is "a testament that we believe in the physical space," Davis told analysts on a conference call. | SEE NCR STORY

For Netflix, streaming is the future. The company's chief executive, Reed Hastings said, "We expect DVD subscribers to decline forever." | SEE STORY

Netflix had 24.4 million subscribers in the U.S. at the end of December, while Verizon ended the year with 4.2 million FiOS TV customers. Coinstar rents out DVDs at $1.20 a day and Blu-Ray discs for $1.50 a day. The Redbox alliance is Verizon's first venture into video streaming outside its network-operating region as the telephone company, which competes with cable providers like Comcast Corp. and Time Warner Cable.

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