Verizon combines with Redbox to challenge Netflix in video

Posted 2/6/12

NEW YORK - Verizon Communications Inc., the second-largest U.S. phone carrier, formed a joint venture with Coinstar Inc. to compete with Netflix Inc. in offering DVD-movie rentals and a video streaming and download service.

Verizon, looking to expand its video service offering nationally, will take a 65 percent stake in the venture with Coinstar holding 35 percent, the companies said Monday in a statement. Coinstar owns the Redbox video-rental business with more than 34,000 kiosks nationwide.

The joint venture, scheduled to start in the second half, may create new competition to Netflix’s rental and streaming service as consumers seek new ways to watch movies and television shows. By combining with Redbox, which offers DVD rentals for about $1, Verizon is adding physical discs to its video offering, allowing it to also compete with Dish Network Corp.’s Blockbuster.

“I’m not sure Verizon can be a real competitor with Blockbuster and Netflix without the physical DVD component,” said Jaison Blair, a Telsey Advisory Group analyst in New York.

Redbox kiosks are used by 30 million people, according to Rachel Gerber, a spokeswoman for Bellevue, Wash.-based Coinstar. New York-based Verizon has 4.2 million customers for its FiOS video service. Netflix has 24.4 million subscribers.

Coinstar rose 1.7 percent to $50.50 at 10:10 a.m. New York time, while Verizon added 0.2 percent to $37.93. Netflix fell 2.6 percent to $123.18.

‘Library Content’

Even as video streaming increases, consumers are still renting discs. Last year, Los Gatos, Calif.-based Netflix aborted a plan to split its streaming and DVD-by-mail businesses and battled a subscriber revolt over price increases.

“This is a response to what Dish is doing with Blockbuster and what Netflix decided when it realized the physical DVD is still an important component to them,” Blair said.

The joint venture could also help Verizon compete with cable companies, which offer on-demand content over their networks. Meanwhile Verizon Wireless, a subsidiary Verizon co- owns with Vodafone Group Plc, is working with cable companies Comcast Corp. and Time Warner Cable Inc. to cross-sell wireless and cable-TV plans to their customers.

“The service will have a Netflix look and feel, which means it will likely offer more generic library content, and not the latest shows and movies, in terms of digital rights,” said Christopher Watts, an analyst at Atlantic Equities in London. “That’s the model Verizon is aiming for.”

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