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Redbox Partners with Verizon to Offer Streaming Movie Service

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As Netflix morphs into a streaming video giant, it's biggest threat might be Redbox, the kiosk-based DVD rental service.

On Monday, Coinstar, parent company of Redbox, made two key announcements: Coinstar is swallowing the Blockbuster Express business and partnering with Verizon to create a streaming delivery solution.

Blockbuster Express

The fact that Coinstar is taking over a kiosk competitor should come as no surprise. Blockbuster Express kiosks are negative brand dilution for the already-tarnished Blockbuster name. Plus, they have no tie to Blockbuster's in-store Total Access program.

Blockbuster Express wasn't even run by Blockbuster's parent company, Dish Networks. Rather, the Blockbuster Express name was licensed out to cash register-maker NCR.

Word on the street is that Coinstar will acquire the assets of NCR's entertainment division for just shy of $100 million, freeing NCR to focus on its own backlog of traditional point-of-sale systems for retail stores and restaurants.

Lest anyone worry that $100 million will break the Coinstar bank, the company announced the acquisition of the Blockbuster Express kiosks during an earnings call that saw it nearly triple revenues over the fourth quarter of 2010, earning $31.52 per share.

Blockbuster, for its part, explained away the sale of Blockbuster Express to Redbox by promoting its premium pricing on day and date of release -- an advantage that Blockbuster has over almost every other company in the brick-and-mortar and streaming delivery markets.

"Until the transaction is completed (we anticipate in the third quarter of 2012)," wrote Jason Hotard, Blockbuster general manager, "you will continue to enjoy the convenience, choice, and value you're used to from Blockbuster Express. Until the sale is completed, we will continue to run the business as we have been, focused on bringing you the latest new release movies with most titles only $2 for the first night."

Verizon Communications

The other news that Coinstar announced was its impending partnership with Verizon Communications, creating a streaming media component to complement its DVD rental business.

Forming a partnership illustrates a key difference between Netflix and Coinstar: while Netflix is moving away from physical discs as fast as it can, Coinstar is strengthening its kiosk business while partnering for streaming, an area where Verizon has more experience.

"Verizon brings to the partnership its relationship with film studios and distribution technology, such as cloud computing and network infrastructure," wrote Roger Yu in yesterday's USA Today. "Redbox provides its movie-rental brand recognition and the ability to bundle streaming with immediate access to 35,400 kiosks." 

Inventory and pricing details weren't released by Coinstar or Verizon. The two companies expect the service offering to begin around the same time the NCR asset sale of Blockbuster Express kiosks is finalized.

Going forward, Coinstar faces two threats in its venture with Verizon:

1. Brand dilution. Redbox will need to differentiate between what's available in the kiosks versus what's available online.

2. Reputation. Redbox's reputation will now, to a large extent, rest on Verizon. If the streaming service lacks the ease of a Redbox kiosk, then Coinstar could face consumer backlash.

Coinstar needs to be careful, or it will fall into the trap that Blockbuster did when it launched its Total Access package (combining DVD-by-mail and brick-and-mortar) but ignored its Blockbuster-branded kiosks. That would be a pity for a company that's done well by presenting one simple offering: DVDs and Blu-Ray discs at a single price at a convenient local kiosk.

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