Bloomberg News

Redbox Instant Signs Film Accords as Netflix Battle Looms

December 12, 2012

Redbox Instant by Verizon, the digital movie venture preparing to start service, gained rights to stream films from Paramount Pictures, Lions Gate and Metro- Goldwyn-Mayer, a step toward competing with Netflix Inc. (NFLX:US)

Owned by Coinstar Inc. (CSTR:US) and Verizon Communications Inc. (VZ:US), Redbox Instant will stream newer films such as “The Hunger Games” and offer four DVD rentals from Redbox dispensers for $8 or $9 a month. Streaming-only is $6 a month, Chief Executive Officer Shawn Strickland said in an interview.

The service, 65 percent owned by Verizon, is banking on price and convenience to gain a foothold in the budding online video market. In addition to offering subscription streaming and DVDs for half the price of Netflix, Redbox Instant will sell and rent new releases from most major studios. Strickland is targeting Redbox customers who watch 58 million DVDs a month and isn’t trying to match the TV library of its larger rival.

“We really think we have a unique value proposition,” Strickland said. “We are very focused on the movie-lover segment. We’re not trying to be all content to everybody.”

Redbox Instant is being tested by about 2,000 employees of New York-based Verizon, the second-largest U.S. phone company. It will expand to as many as 100,000 customers in a limited public test before year end, Strickland said. A full commercial rollout is anticipated for the first quarter of 2013, he said.

Shares Rise

Shares of Coinstar and Netflix rose, a sign investors see room for both. Redbox Instant will pay studios based on use rather than a fixed cost, Strickland said. Analysts Eric Wold at B. Riley & Co. and Michael Pachter at Wedbush Securities said they expect Redbox Instant to limit its spending.

“By and large we are partnering,” Strickland said. “We’re not entering this business with a model that involves making big investments in content.”

Coinstar, based in Bellevue, Washington, rose 2.3 percent to $51.96 at the close in New York. The shares have advanced 14 percent this year. Verizon climbed 0.8 percent to $44.79 and has gone up 12 percent in 2012.

Netflix added 5.4 percent to $90.73 after Scott Devitt, an analyst with Morgan Stanley, raised his price target to $105 from $80. The shares have risen 31 percent this year.

The Redbox Instant streaming accord is with Epix, the premium pay-TV channel owned by Viacom Inc. (VIAB:US)’s Paramount studio, Lions Gate Entertainment Corp. (LGF:US) and MGM Holdings Inc. (MGMB:US)

Newer Movies

Redbox Instant will have new Epix releases on the same basis as Netflix, or 90 days after they premiere on the pay-TV channel, along with catalog titles. In all, the service will offer about 5,500 older titles for streaming, including from Time Warner Inc.’s Warner Bros.

Films from Lions Gate, Paramount, Warner Bros., Comcast Corp.’s Universal Pictures, Sony Corp. (SNE:US) and Relativity Media LLC will be available for purchase and on-demand rental.

“We’re focused on movies that really matter to the marketplace and the consumer,” Strickland said.

Netflix had 27.5 million U.S. streaming and mail-order DVD subscribers as of Sept. 30. Last week, the Los Gatos, California-based company signed an agreement for exclusive access to Walt Disney Co. films in a time period usually reserved for premium cable networks like Starz. Netflix has agreements for popular TV shows like “Mad Men” and is also producing exclusive content.

Netflix, the largest video-subscription service, charges $7.99 a month for unlimited streaming. DVDs by mail cost an additional $7.99. The company is spending about $2 billion a year to acquire online and produce original programming, CEO Reed Hastings said in October.

Redbox Instant is taking a deliberate approach to work out any kinks in the service before it is opened to the general public, Strickland said.

“We want to make absolutely sure all of the assumptions we made as we built it will play out in the marketplace,” Strickland said.

To contact the reporter on this story: Michael White in Los Angeles at mwhite8@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net


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