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Subscription Model Not So Broken

17 Dec, 2012 By: Stephanie Prange

Last year at this time, analysts were wondering if Netflix’s all-you-can-eat subscription model was broken. The company was reeling from an ill-advised price hike, with its stock plummeting on the subscriber backlash. But recent developments are showing the subscription model Netflix pioneered is alive and well.

Netflix this month signed an exclusive landmark deal with Disney to offer the studio’s top titles in the pay-TV window, giving the service a major boost in quality content.

Meanwhile, yet another competitor is poised to join the market that also includes Amazon’s Prime subscription streaming service (offered at no additional charge to those who subscribe to the company’s shipping service).

Redbox’s streaming service — first hinted at more than two years ago — is finally getting off the ground. Priced at $8 per month, Redbox Instant powered by Verizon plans a consumer beta test this month. The service offers unlimited streaming of movies, including coveted titles from pay-TV service Epix, with four one-night credits per month for new releases on DVD at Redbox kiosks. For $1 more, or $9 per month, customers can opt to redeem their four credits for rentals on Blu-ray Disc at the kiosks.

Unlike Netflix, Redbox Instant will throw in disc rentals for the Netflix price, as well as electronic sellthrough (EST) and transactional VOD options for new releases on street date from Lionsgate, NBC Universal, Paramount, Relativity and Sony Pictures.

This seems to be key.

Redbox, analysts say, is getting a break on content licensing costs from studios in exchange for promoting the kind of consumer consumption studios prefer to subscription streaming —  transactional VOD and EST. Studios are willing to grow a subscription model if it also helps expand the revenue pie for higher-cost digital options.

Until Netflix comes to heel on higher-cost consumer options for digital, the studios seem determined to make the company pay dearly for content (Disney’s Netflix deal is estimated at as much as $300 million).

Subscription services are being squeezed for more revenue and cooperation, but the model is far from broken.

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About the Author: Stephanie Prange

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