Bloomberg News

Verizon Forms Video Venture With Redbox to Take On Netflix

February 07, 2012

(Updates with closing share price in fifth paragraph.)

Feb. 6 (Bloomberg) -- Verizon Communications Inc., the second-largest U.S. phone carrier, formed a joint venture with Coinstar Inc. to compete with Netflix Inc. in offering a video- streaming service.

The service will be available to anyone in the U.S. with a broadband-Internet connection, Bob Mudge, president of Verizon’s consumer business, said in a phone interview. Verizon, looking to expand its video service offering nationally, will take a 65 percent stake in the partnership with Coinstar holding 35 percent, the companies said. 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 for Netflix’s streaming service as consumers seek new ways to watch movies and television shows online. Verizon said it will secure new streaming rights with content providers, though the company declined to specify if the new offering will focus on feature films or TV shows.

“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 LLP in London. “That’s the model Verizon is aiming for.”

Coinstar, based in Bellevue, Washington, added 1.8 percent to $50.56 at the close in New York, while Verizon climbed 0.8 percent at $38.14. Netflix rose 2.2 percent to $129.25.

Target Market

Mudge said Coinstar and Verizon are “still working through the streaming rights deals with different companies.” Coinstar’s Redbox, which doesn’t offer a streaming service, rents DVDs for about $1 at its kiosks.

“We have 36 million e-mail addresses,” Coinstar Chief Executive Officer Paul Davis said in the interview. “That’s a lot of people we can talk to about this new service.”

Coinstar says 30 million people use its kiosks and that 68 percent of the U.S. population is within a five-minute drive of its locations. New York-based Verizon has 4.2 million customers for its FiOS video service. Los Gatos, California-based Netflix has 24.4 million subscribers.

The popularity of online video streamed to televisions, computers and portable devices has attracted companies including Apple Inc., Google Inc. and Amazon.com Inc. to the market. Dish Network Corp. also offers an online film service that delivers movies under the Blockbuster name to its satellite-TV customers.

The Coinstar 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 providers Comcast Corp. and Time Warner Cable Inc. to cross-sell wireless and cable-TV plans to their customers.

While Coinstar and Verizon didn’t offer many details about the service, delivery to mobile devices will probably be a key part of the plan, said Sam Greenholtz, an analyst at Telecom Pragmatics Inc. in Westminster, Maryland.

“You’ll see Verizon make wireless a major push,” he said. “It’s one area where they have an advantage over Netflix.”

--With assistance from Alex Sherman and Edmund Lee in New York. Editors: Ville Heiskanen, Peter Elstrom

To contact the reporter on this story: Scott Moritz at smoritz6@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net


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