Monday, February 06, 2012

Redbox partners with Verizon for video streaming, buys NCR's video rental kiosk business

Coinstar, the owner of the Redbox service that operates 29,000 video rental kiosks in retail locations in the U.S. and Canada, made two big announcements today:
First, the joint venture with Verizon to enter the streaming video market. This deal has been rumored for months, but Verizon and Coinstar made it official today. Verizon will own 65% of the business, and Coinstar will own the remaining 35%. The service will compete directly with Netflix, and will launch in the U.S. in the second half of 2012. Coinstar and Verizon offered very few details about the service, but it will be available to all consumers with broadband Internet service, not just Verizon's subscribers.

Next, Coinstar will pay up to $100 million to acquire NCR's entertainment business, as well as pay NCR $25 million for goods and services over the next five years. NCR's entertainment business primarily consists of video rental kiosks operated under the Blockbuster Express brand; NCR licensed the brand name from Blockbuster. It's not clear whether Coinstar will convert the NCR kiosks to the Redbox brand, or will replace the NCR kiosks with its own devices.

How does all of this add up? Redbox was already the top video renter in the U.S. with 30 million customers, and the acquisition of NCR's business will both give the company even more locations and eliminate a competitor. The net result is that Redbox's video rental business, which is profitable and growing, will get even bigger and be better positioned to take business away from Netflix.

As for the streaming service, Coinstar's approach appears be the reverse of Netflix's, which is deemphasizing its video rental business in favor of streaming. Redbox appears to be betting that its kiosk rental business will remain strong while using Verizon's capital and infrastructure to stake a position in the streaming business. Verizon and Coinstar have released no details about their new service, so it's currently the equivalent of a "Watch This Space" sign. However, they have a lot of work to do before they launch, including:
  • Signing licensing and distribution deals with content providers
  • Building infrastructure to support video streaming across the U.S., not just on Verizon's own network
  • Writing video clients for PCs, Macintoshes, iPhones, iPads, Android devices, Roku, Google TV, etc.
We'll know far more about how competitive the Verizon/Redbox service will be in the next six months.

Update, February 22, 2011: I just noticed that those pesky DISH spammers voted this post "one star" as well. If you're going to "p---" on the people who cover your industry because they refuse to give you free advertising, it most definitely will come back to bite you. At the very least, it opens questions about the financial condition of a company that has to rely on spammers instead of paying for advertising. But, I understand that DISH may be cash-poor after being forced by the courts to pay TiVo $500 million for stealing its technology.

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