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Analyst Proposes Redbox, Walmart Streaming Pact

25 Oct, 2010 By: Erik Gruenwedel

Redbox’s desire to launch a streaming service could achieve reality if it partnered with Walmart, an analyst said.

The Coinstar Inc.-owned kiosk disc vendor has said it is exploring a streaming option – now considered even more important after Netflix last week said its subscribers watch more digital content than from physical discs.

Eric Wold, analyst with Merriman Curhan Ford in New York, contends Walmart and its Vudu transactional video-on-demand (VOD) service would be compatible, considering Walmart represents 20% of Coinstar’s total revenues and about 18% of Redbox’s retail footprint.

“A partnership would not only help Redbox access digital rental/purchase opportunities through CE devices, but Walmart could further boost its stake in the kiosk market as well as traffic to kiosks within its stores,” Wold wrote in a note.

The analyst also considers Amazon a worthy partner to co-launch a streaming partnership in light of Amazon’s VOD service and its desire to limit its state retail tax liabilities.

Texas Oct. 22 sent Amazon a $269 million bill for uncollected sales taxes on purchases made by residents from the online retail behemoth over a four-year period.

Cash-starved states are increasingly eying the Internet, which heretofore has exempted online retailers from collecting (and paying) sales taxes from out-of-state consumers. Sales tax revenue accounts for about 30% of most state budgets.

“[Sales taxes] might have been a reason [Amazon] has not pursued an acquisition of Netflix,” Wold wrote.

The analyst reiterated that hype regarding streaming should not undermine a physical disc rental market that continues to generate 80% ($8 billion) of the rental market revenue.

“We believe the estimated 91 million households that own a DVD player are more likely to gravitate towards the less-expensive and technologically-easier-to-understand DVD rentals over digital for at least the next five-to-10 years (especially with additional brick-and-mortar store closures),” Wold wrote.

Constar/Redbox reports third-quarter results Oct. 28.

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