Coinstar subsidiary Redbox today announced a new partnership with Verizon for the launch of a streaming video service. The joint venture will launch in second half of 2012 and be a subscription-based and "affordable service that will allow all consumers across the U.S. to enjoy the new and popular entertainment they want, whenever they choose, using the media and devices they prefer," the companies said in a statement.
With the new service, Coinstar better positions its primary business for the digital age. Redbox's kiosks, generally located at grocery or retail stores such as Walmart, offer customers dollar-a-day DVD or video game rentals. With the addition of a streaming service and its new-fledged partnership with Verizon, Redbox now further complicates a crowded field of digital streaming juggernauts that include Netflix, Amazon, and Hulu.
"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 ... it's clear that Verizon and Redbox are a powerful entertainment team," said Bob Mudge, president of Verizon consumer and mass business markets, in a statement.
"Our joint venture with Verizon will enable us to bring them even more value by offering expanded content offerings and greater flexibility for how and when they enjoy entertainment," said Coinstar CEO Paul Davis. "This alliance is the result of a deliberate and strategic process to identify a partner who shares our commitment to delivering innovative solutions to consumers."
Details of the partnership are still sparse. The companies only indicated they plan to introduce a "product portfolio" and will offer "subscription services." It's unclear what these services are; how or whether they will be bundled with Redbox's kiosk business or Verizon's VOD services; what content these services might provide; or how much it'll cost.
But the companies did say they intend to go after the business from both physical and digital worlds, offering consumers in the U.S. access to content online and on mobile devices—similar to Netflix—and illustrating so in the below infographic released online. The partnership will be a limited liability company with Verizon holding a 65% ownership share and Redbox holding a 35% ownership share.
In a conference call held this morning, Coinstar's Paul Davis and Verizon's Bob Mudge provided little if any more detail about the new partnership. Mudge referred to it as a "single-source" service that will combine the convenience of DVDs-by-kiosk with on-demand streaming. Davis stressed Verizon's strong relationship with top entertainment providers, and highlighted Verizon's extensive IP network infrastructure and customer base of 30 million active rental customers and 109 million wireless customer connections. He said the partnership represented "the best of both worlds" of physical and digital offerings.
Added Mudge, "At this point, due to competitive concerns, we're limiting our description to 'subscription services and more.'"
The announcement comes at an opportune time for Redbox, which has long been expected to introduce a streaming service to complement its DVD business. After Netflix hiked prices by roughly 60%, consumer sentiment for the popular brand fell to all-time lows, and caused an exodus of hundreds of thousands of subscribers. Paul Davis has said the company's business has benefited from Netflix's hiccup, gaining new customers from its "disenfranchised" members. Last quarter, Redbox pulled in $390 million, up 28%; Redbox generates about 84% of parent Coinstar's revenue.
But Netflix has begun to recover from its stumbles, adding 600,000 U.S. subscribers last quarter, and Redbox has said it will introduce a price hike of its own. The company has said rates will increase to $1.20 per night, to offset rising operation costs of its kiosk business—another suggestion that the long-term future of the rental business is likely online.
And while the company's kiosk business has been booming, it has a long way to go before it catches up to rivals in the digital space like Netflix, which boasts more than 20 million subscribers. Not only will it have to compete for content but accessibility. It's not so much Netflix's library of movies and TV shows that has made it a success but the service's availability on everything from video game consoles and smartphones and tablets.
That's why Coinstar's partnership with Verizon is so crucial to the Redbox's success in this area. With Verizon's network infrastructure and deep relationships with content providers and device makers, Verizon is likely to give Redbox a big leg up against competitors going forward.
Coinstar will announce its Q4 earnings later today. We'll see how the markets react to this new Redbox-Verizon deal.
[Image: Flickr user makelessnoise]