Redbox/Verizon To Marry Content And Distribution

A newly announced joint venture between Redbox and Verizon Communications has Netflix looking over its shoulder and movie content owners happily anticipating a new round of licensing revenues. The Redbox/Verizon strategy pairs content and distribution together. Financial analysts however, have been unable to assess the new deal because many key details are yet to be announced.

Redbox, owned by Coinstar, secured success by renting physical DVDs from strategically placed kiosks. Redbox’s 2011 Q4 net income nearly tripled to $31.5 million, almost $1 a share, and handily beating estimates of $.65 per share.

In return for its $26 million investment, Verizon will own 65% of the new venture, but few hard details have actually been answered about what content will be available over the new Internet streaming channel and what a subscription will cost. Reuters reports that packages will start at $6/mo. for movie streaming and one DVD rental at a time, but the companies have not commented. Netflix streaming and rental packages start at $15.98. One key differentiator is that Netflix incurs postage expenses sending the DVDs through the mail. Redbox customers will have to drive to the machines to exchange discs.

“We are confident we will have a very competitive offering at a great value,” Coinstar Chief Executive Paul Davis told the Wall Street Journal. The new venture’s spending would “not be at the Netflix level,” he added.

Key to the success of the new streaming venture will be content licensing costs for which Netflix now spends over $1 billion/yr.

In making the announcement, Coinstar also revealed that it will buy additional kiosk vending machines from NCR in a deal valued at around $100 million.

At the end of December, Netflix had about 24.4 million subscribers. Coinstar has about 30 million customers (not subscribers) who rent an average 1.9 million movies daily at its 35,000 kiosks.