Published February 06, 2012
NEW YORK – Challenging Netflix, phone company Verizon Communications Inc. says it will start a video streaming service later this year in cooperation with Redbox and its DVD rental kiosks.
Verizon and Coinstar Inc., Redbox's parent, say the service will be national and available to non-Verizon customers. It adds another leg to Verizon's quest to become a force in home entertainment, and looks set to compete to some extent with the cable-TV services it already sells.
Verizon has its own cable-TV service, called FiOS, in some areas. Its Verizon Wireless subsidiary has also signed a deal to sell service from Comcast Corp. and other cable companies in its stores.
With the Redbox venture, Verizon is breaking ranks with the cable and satellite industry, which makes its own video streaming services available only to people who also subscribe to its traditional TV feeds. They don't want households switching to Internet-only services, which are cheaper -- Netflix charges $8 per month for its video streaming plan.
Verizon's own FiOS business is relatively small, with 4.2 million subscribers, making it the seventh-largest provider of TV signals to U.S. homes. Meanwhile, its landline phone business is shrinking, so it needs other avenues for growth. Its wireless arm is growing, but it owns only 55 percent of that venture. (Vodafone Group PLC of Britain owns the rest.)
Verizon and Coinstar didn't reveal prices or other details of their service. It's intended to give subscribers access to DVD and Blu-ray discs as well as streaming movies starting in the second half of the year, they said.
New York-based Verizon Communications Inc. will own 65 percent of the unnamed venture, with Bellevue, Wash.,-based Coinstar Inc. owning the rest. Redbox is contributing an initial $14 million to the venture, according to a regulatory filing. It did not say how much Verizon would contribute.
In morning trading, Coinstar shares shed 26 cents to $49.39 after initially spiking on the news. Verizon shares rose 7 cents to $37. Netflix shares fell $3.38, or 2.7 percent, to $123.05.
Netflix already has a couple of powerful competitors with video streaming services. Amazon.com Inc. provides a library of movies and TV shows to subscribers to its Amazon Prime shipping services. Wal-Mart Stores Inc., the world's biggest retailer, has a streaming service called Vudu.
Neither of these competitors combines Internet delivery of movies with DVDs, like Netflix does. However, Netflix last year started charging separately for its DVDs-by-mail service and the "Instant" streaming service, saying DVDs are on their way out and Internet delivery is its focus.
Netflix alienated customers when it went one step further, and said it would split the two services completely, forcing customers to deal with two movie queues. It backed off that plan after an outcry, demonstrating that customers found value in the combination of Internet movies and discs from one company.
Redbox appears to have benefited from Netflix's troubles, picking up some of the customers who have defected from its DVD service. It now claims to be the biggest DVD rental service in the country, thanks to its more than 28,000 kiosks in drugstores and supermarkets.