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Pachter and others see huge challenges for Netflix on the streaming front. Netflix owes $5 billion in coming years to Hollywood studios for the movies and TV shows it offers. Although that amount plateaued in the recent quarter, it skyrocketed early last year, and analysts warn that it could jump in the future.
The more popular Netflix becomes, the more Hollywood is going to want to be paid for its content, critics say. Because the company has little ability to negotiate those prices, its only way of controlling costs is by reducing the number of videos in its library, as it did this year when it declined to re-sign a deal with Starz, which distributes movies for Sony and Disney. But the fewer videos it offers, the less attractive its service becomes, analysts warn.
“There truly is a tipping point where the content quality isn’t good enough, and they start losing lots of subscribers,” Pachter said.
The company is seeing slowing subscriber growth in the United States. That’s likely to continue as the business matures, warn analysts. To boost growth here, the company might need to start offering different levels of service, said Greg Ireland, an analyst for market research firm IDC. Otherwise, Netflix will be “stuck with flat subscriber growth, with no way to grow their business."
Verizon and Bellevue, Washington-based Coinstar are focused on a streaming network “that can stand on its own against Netflix, against Amazon,” Bruno said.
Redbox Instant was announced earlier this year. In addition to a monthly subscription and an allotment of DVDs from Coinstar’s almost 40,000 kiosks, it will offer a la carte movie rentals online and purchases for download, Bruno said.
Customers will be able to download titles to mobile devices, game consoles and set-top boxes through an application that will be available at Apple Inc. (AAPL)’s app store, Google Inc. (GOOG)’s Android store and other marketplaces, he said.
While there’s no specific date, the venture is targeting a start to the service between late November and mid-December, after a short period of initial public testing, Bruno said. Coinstar has previously said that the service is targeted to start before year-end.
Coinstar and Verizon will pay content providers based on the number of subscribers, similar to traditional cable-TV systems, rather than a set payment, Bruno said. Netflix has paid a set amount for streaming rights to movies over a specific period of time, a model that increases the pressure to attract new subscribers.
Redbox Instant hasn’t announced pricing. In August, Coinstar Chief Executive Officer Paul Davis said the venture will focus on “value” pricing.