Analysts Upbeat on Redbox Results7 Feb, 2012 By: Chris Tribbey
A day after Redbox parent Coinstar made waves by announcing a streaming video partnership with Verizon and the acquisition of NCR Corp.’s DVD kiosk business, analysts were mostly upbeat on the moves.
“When it rains it pours. Lots of positives on the agenda at Coinstar,” was the headline of a research note from John Kraft, analyst with D.A. Davidson in Lake Oswego, Ore. He wrote that analysts now will be speculating “about how accretive the [NCR] acquisition and the new joint venture with Verizon will be.”
“At the end of the day, the company’s competitive positioning has improved,” Kraft wrote. “The DVD format remains the lowest price rental option and the new digital partnership should help retain attrition previously expected to shift to streaming.”
Kraft suggested the Verizon joint venture was a way to help offset consumers’ move away from DVD to streaming.
Michael Pachter, research analyst with Wedbush Securities, wrote that the $100 million NCR acquisition was a “clear positive” but the Verizon joint venture — which won’t launch until the second half of 2012 — is still an unknown.
“[The] Verizon [joint venture] will likely compete with Netflix’s hybrid offering, although there is no indication that the [joint venture] will offer unlimited viewing,” Pachter wrote. “We estimate that over 11 million of Netflix’s hybrid subscribers quit the service or switched to a streaming only or DVD-only plan over [the second quarter of 2011], creating a huge market opportunity either for Redbox on a standalone basis, or for a suitable hybrid.”
But BTIG Research analyst Richard Greenfield wrote in a research note that he was skeptical as to why Verizon is teaming with Redbox, with “DVDs going the way of VHS.”
“Given the initial capital commitment of $450 million … we presume this will look like a far weaker version of Amazon’s current Prime Instant Streaming service and be dramatically weaker than Netflix’s streaming service,” Greenfield wrote.
He went on to point out that Verizon is likely unwilling to commit the capital needed — more than $1.5 billion — to have a Netflix-like streaming offer all on its own.
“Long-term, we doubt Verizon really wants their streaming joint-venture to include DVD kiosk rentals, but it was a way to get started with a pre-existing user base (30 million plus active Redbox kiosks users),” he wrote.