Coinstar and Verizon Double-Team Netflix with Redbox Streaming

The Cheat Sheet

The next in a series of challenges to the ubiquitous Netflix , phone company Verizon will team up with Coinstar to start a video streaming service like you’ve never seen before (if you don’t own a computer, that is).

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Coinstar’s Redbox claims to be the biggest DVD rental service in the country, but with the help of the nation’s number one wireless carrier, hopes to broaden its customer base by appealing to that ever-growing faction of Americans too lazy to leave the house for their entertainment.

Redbox kiosks can currently be found outside your friendly neighborhood grocery store and nearly every Walgreens in the country, but how are shut-ins supposed to watch every season of Mad Men?

Right now, they turn to Netflix, or maybe Hulu , Amazon , or one of the various other sites or services offering instant, streaming video for a reasonable price. But Redbox and Verizon cleverly thought to give consumers more of the same.

Like all the other video streaming services we know and love, the Redbox/Verizon venture will be national — that means anyone in the country with a computer and a decent broadband connection can be watching streaming video just as soon as they can type in their credit card information.

And instead of offering something different and risky, Redbox will be following Netflix’s tried-and-true model by combining its streaming and DVD services.

Details and pricing of the new plan have yet to be released, but the companies are said to be shopping around a $6-per-month offering that would give subscribers one DVD rental from Redbox per month as well as unlimited streaming of a certain selection of movies.

That’s well below the $16-per-month minimum Netflix subscribers have to pay for a combined DVD-by-mail and streaming plan, though it will be a while before Redbox can compete with Netflix in the sheer volume of its offerings.

Redbox’s inventory is limited to what’s in its kiosks, while Netflix has a library of more than 100,000 discs, including obscure Indie films and foreign documentaries. Plus, Redbox customers will still be required to pick up DVDs at a kiosk, which saves Redbox in mailing costs, but doesn’t help customers save on gas.

It will also be a while before Redbox can compete with Netflix’s 20,000-plus streaming titles. The cost for streaming rights is rising, driven higher by Netflix’s success. At the end of last year, Netflix had video licensing commitments totaling $3.9 billion worldwide over the next several years, some of which granted the service exclusive distribution rights.

Verizon will handle streaming negotiations, Coinstar CEO Paul Davis told analysts at a conference held Monday to discuss the company’s fourth-quarter earnings. Davis gave no details on how the subscription service might work, choosing to keep things under wrap for competitive reasons. However, he did say the service won’t be available until the final half of this year. The anticipation is palpable.

Redbox will probably take the lead on promotion, as the company has accumulated roughly 36 million email addresses from DVD and video-game renters. But the well-connected Verizon definitely has the advantage when it comes to content negotiations.

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Verizon already has its own cable-TV service in some areas, and its Verizon Wireless subsidiary has also signed a deal to sell service from Comcast and other cable TV companies in its stores. Its cable-TV experience has helped Verizon establish relationships with Hollywood bigwigs, which may lend a certain advantage in negotiations for streaming rights.

But Verizon will be putting its relationships in the cable and satellite industry in danger. Companies like Comcast and Time Warner don’t want households switching to Internet-only services, which cost considerably less than their own antiquated services.

The average monthly cable bill is around $70 a month — that might explain why no one under 30 owns a TV — but cable companies are still clinging to the hope that this Internet thing is just a fad.

Verizon has less to lose — it’s FiOS business is relatively small, with just 4.2 million subscribers — and the company needs to find other avenues for growth as its land-line phone business (yes, land lines still exist) continues to shrink.

Verizon and Redbox will undercut Netflix’s cheapest DVD and streaming plan in order to get people to give the new service a chance. Verizon Communications will own 65 percent of the as yet unnamed venture. Redbox will contribute an initial $14 million, according to a regulatory filing. While Verizon’s monetary contribution is unknown, the company’s can-do attitude is worth its weight in gold.

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To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

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