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Verizon, Redbox Form Digital Partnership

6 Feb, 2012 By: Chris Tribbey

Redbox has signed with Verizon to offer a video-on-demand and streaming service paired with its DVDs and Blu-ray Discs at more than 35,000 kiosks, the companies announced Feb. 6.

The partnership calls for a subscription offering, with consumers paying a fee for both disc and digital. Pricing information was not available, though the companies do plan to launch the service during the second half of 2012.

“It is a subscription offering. It’s a national offering, so it’s available to any consumer [who] has broadband access, and it will be the a combination of the best of digital, as well as physical,” Coinstar CEO Paul Davis said during a conference call with investors.

But neither Coinstar nor Verizon will talk about platforms or other product offerings from the joint venture.

“As we get closer to launching this in the second half of the year we’ll get a lot more granularity and color,” he said. 

Davis added that Verizon would play the lead on acquiring content for the new service.

“We wanted someone who had access to digital content, someone who had a technology platform, someone with lot of consumers, and we believe Verizon is the perfect partner,” Davis continued. “They have a breadth of digital entertainment, unrivaled networks, and [they’re] really a leader in their space.

“We’ve been listening to our consumers, and they’ve been telling us what they would like to see is for us to have a broader offering of portable entertainment across multiple platforms. We believe our new service will give consumers the best of both worlds, both physical and digital.

While details about the new service were scant, Bob Mudge, president of Verizon consumer and mass business markets, said during a media conference call that it will strive to deliver both disc and streaming to consumers in a way they can “immediately enjoy.”

“It will focus on developing a new, single source, national, multiplatform product … that will combine the convenience of physical media rentals from Redbox … with a new, national, on-demand digital entertainment streaming and download service from Verizon,” he said.

Mudge added that Verizon and Redbox were limiting their description of the service “due to competitive concerns.”

Davis said Redbox chose Verizon for digital partly due to its 4G wireless network and FiOS TV and Internet service. As of Jan. 24 Verizon reported having 4.2 million FiOS subscribers, and 4.8 million Internet subscribers.

The joint venture sees Verizon holding a 65% ownership share, Redbox 35%.

“The joint venture will combine the accessibility and value of Redbox with Verizon’s vision for a borderless lifestyle — where consumers easily accomplish what they want or need to do, on their terms, through the power of the network,” Mudge said. “Together, we are erasing old technology boundaries, freeing people to spontaneously enjoy the entertainment they want, whenever they choose, using the devices and media they prefer, at home or away.”

Ralph Schackart, analyst with William Blair & Co. in Chicago, wrote in a research note that the joint venture likely will need to make a significant investment in content deals to help compete with the likes of Netflix.

“We suspect the Redbox/Verizon [partnership] will combine elements of physical and digital services. For example, perhaps a consumer will receive a ‘digital credit’ for Redbox rentals or a subscription package may include unlimited catalog streaming and a pre-designated number of physical DVD rentals for newer releases,” he wrote. “The challenge for Redbox is how to build a differentiated content offering.”

While offering DVDs and Blu-rays from every major studio, Redbox currently delays new-release titles from two studios — Universal Studios Home Entertainment and 20th Century Fox Home Entertainment — for 28 days. A similar agreement with Warner Home Video ended Jan. 31, leaving Redbox free to stock that studio’s discs sooner.

Michael Pachter, research analyst with Wedbush Securities, wrote in a research note that the new service could prove a viable alternative to Netflix, depending on pricing, availability of content, and the quality of the experience.

“If the service has rates similar to on-demand competitors Amazon and Apple, it is unlikely to gain traction, as we believe most consumers would to opt to pay as they go, rather than commit to a recurring monthly fee,” he wrote. “In our view, in order to attract Netflix’s former hybrid subscribers, to convince value-conscious Redbox customers to upgrade to a hybrid service, the [joint venture] will have to offer discounted rates, at least in the short term.”

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