When Coinstar, Inc. (NASDAQ:CSTR)’s Redbox entered the market, it had a fresh new approach with a solid value proposition for consumers i.e. access through kiosks and a low price point. However, with the large number of users migrating online, revenue from the DVD business should decline going forward.
Coinstar teamed up with the powerful Verizon Communications Inc.
(NYSE:VZ) with the recent launch of Redbox Instant, to address the trend towards “Over-the-top” media consumption.
Surprisingly, Coinstar, Inc. (NASDAQ:CSTR)‘s revenue from its Redbox franchise overall has shown stellar growth due to the introduction of Blu-ray discs as well as video game rentals. This goes to show that some customers still see some value in the ability to enjoy physical discs of movies that are barely 28-45 days old. But the leader in Internet streaming, Netflix, Inc. (NASDAQ:NFLX) is migrating its DVD users to its online platform, as a result, Netflix (NASDAQ:NFLX) is losing DVD subscribers, but gaining tremendous traction in adding streaming subscribers.
The post beta launch by Coinstar, Inc. (NASDAQ:CSTR) and Verizon Communications Inc. (NYSE:VZ) brings more competition in an increasingly crowded Internet streaming landscape. Other than the price point, there are very few similarities between the offering of Redbox and other competitors in the space including Netflix, Hulu Plus and Amazon (NASDAQ:AMZN) Prime.
The size of Redbox Instant’s content library is barely a fraction of its competitors, with roughly 4,600 titles, along with 4 online credits which will enable users to redeem a movie at Redbox kiosks. However, the credits from the $8 monthly subscription cannot be used to rent games, which would have been a great bait for getting incremental subscribers for the service.
On a comparative basis, Amazon.com, Inc. (NASDAQ:AMZN)‘s Prime offering has more than 38,000 movies and TV episodes, and Netflix has an estimated content base of well over 60,000. And Amazon’s Instant Video contains more than 150,000 titles that users can buy or rent, which even includes new release movies and even day after air shows.
Whereas on Redbox Instant if users don’t want a subscription they can rent newer movies from the online store from prices of $1 and upwards, which now has only ~4000 movies available on demand. Selling movies on demand through the Internet will certainly reduce user traffic to the physical Redbox kiosks.
And the Redbox Instant offering is mostly movies, which differs substantially from the other Internet streaming services, all of which have very heavy TV show viewers. Netflix has stated that almost two-thirds of its total viewing is from TV shows alone.
Also, Redbox Instant won’t be adding original shows to its service, which also makes it much more different from the other bigger players in space. Netflix, Amazon and Hulu are all producing a number of original shows, most of which will be aired in 2013 and 2014.
Redbox Instant by Verizon Communications Inc. (NYSE:VZ) will give users ubiquitous access from Smart TVs and gaming consoles etc., which is very much in line with other Internet offerings. Though it is being offered only in the U.S., it is almost certain to be launched in select international markets. Netflix has a presence in more than 40 countries, and Amazon has a solid presence in Europe through its LOVEFiLM subsidiary.
The CEO of Redbox Instant has stated that his company’s service will be geared towards consumers who still use physical discs. And rightly so, the company won’t be adding TV shows, at least not on a large scale especially in the near-term. But in the long-term, TV will likely be an important component of the Redbox Instant service.
And the management also, believes that over time users will likely subscribe to multiple offerings in the over-the-top streaming space. Worth mentioning, Reed Hastings of Netflix also feels the same way. All the different streaming companies are trending towards original content, which differentiates their service from one another, but Redbox is unlikely to add original content at least not anytime soon.
Verizon will own 65% of the Redbox Instant venture, whereas Coinstar, Inc. (NASDAQ:CSTR) will own the rest. And it is worth noting that Verizon Communications Inc. (NYSE:VZ) has a lot of digital content which it currently offers through On Demand. And also, Verizon Communications Inc. (NYSE:VZ)‘s On-demand offering contains a lot of shows which have aired on the same day.
If Verizon Communications Inc. (NYSE:VZ) can add more content especially TV shows to the Redbox Instant service, and cross-sell subscriptions to its existing telecom and other subscribers, the Redbox Instant service should get a decent boost in terms of the subscribers it can sign up.
Redbox Instant has a small fraction of the video streaming libraries of Netflix, Amazon and Hulu and it currently has no TV shows. The DVD credits partially make up for the significantly smaller library. If the company doesn’t add substantially more content especially TV shows, and also original and exclusive shows, it is unlikely to have a material impact in the space. Competitors all have similar price points, but offer a much larger content base including TV, and a number of original shows.
The article Can Redbox Instant Gain Ground? originally appeared on Fool.com is written by Ishfaque Faruk.
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