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Market darling Netflix (Nasdaq: NFLX ) may not have the low-priced streaming smorgasbord to itself for much longer.
Coinstar's (Nasdaq: CSTR ) Redbox is apparently ready to dive in, once it finds its swim trunks. The company behind cheap flick rentals from its signature red kiosks is surveying customers about a streaming subscription package, according to DVD enthusiast website High-Def Digest. Film buffs are being asked if they would be interested in paying $3.95 a month for a plan that includes unlimited streaming along with four nightly rentals.
It's a pretty compelling deal on the surface, since the value of the four DVD rentals alone is $4. The cheapest unlimited streaming model through Netflix sets subscribers back $8.99 a month with a single DVD out at any given time.
Now, before Netflix shareholders begin curling up in fetal positions and barking out sell orders, let's ask the two questions that truly matter at this point.
- Is this really going to happen or is it just survey vaporware?
- How quickly can Redbox build a streaming catalog that as of right now is at zero?
The second question is just as important as the first one, because a buffet is only as good as the quality of the spread. If Redbox's streaming selection is limited to Gigli, Ishtar, and the Police Academy series, it may as well rename itself Deadbox.
Keeping your frenemies close
How is Redbox going to strike the digital licensing deals anyway? This is a company that has butted heads with studios in the past. Hollywood hates having its hottest releases marked down to $1-a-night rentals through Redbox machines, fearing that the cheap deals are eating into DVD sales.
It has taken Netflix three years to build its digital library to roughly 17,000 titles. How quickly can Redbox get up to speed? It is chummy with Viacom's (NYSE: VIA ) Paramount, but the studio is unlikely to license any of its reasonably marketable films cheaply.
The one thing that is making sense in light of this development is the deal that Coinstar entered with Warner Home Video two months ago. Coinstar and Netflix have agreed to hold back from renting Time Warner's (NYSE: TWX ) freshest releases for the first four weeks. The studio estimates that it sells 75% of any title during the first 28 days on the market, and it should sell more if Redbox isn't spitting out buck rentals and Netflix isn't devaluing the flicks with its unlimited DVD plans.
Time Warner agreed to give both companies price breaks for their patience. It also agreed to open up more of its older library to Netflix for streaming purposes.
"This is going to be a real problem, for Coinstar in particular," I wrote at the time. "At least Netflix can point to its data-crunching recommendations engine or its growing streaming service. Coinstar simply will not have the Time Warner flicks -- until a large group of movie fans have already bought a copy."
Well, if Coinstar struck this deal under the assumption that it would eventually have the same streaming access to certain Warner Home Video as Netflix, then it wasn't the one that got punked in this deal.
Netflix hit a new all-time high yesterday, fueled by its popular debut over the weekend on Apple's (Nasdaq: AAPL ) iPad. With 12.3 million subscribers -- and growing -- the service has overcome concerns that its fortunes will live and die by the optical disc.
A lot of that sizzle comes from the fact that its unlimited streaming watering hole is presently uncontested in the industry. Time Warner's HBO Go and Comcast (Nasdaq: CMCSA ) are making their programming available online to active subscribers at no additional cost, but those services are part of already costly monthly cable bills. Netflix -- for now -- is the only deal in town where unlimited streams of studio content are available for less than $10 a month, with home-delivered DVDs as a bonus.
If Coinstar manages to round up a reasonable digital library -- and that's a big if -- at less than half of Netflix's price, it can really be a game changer. With every passing quarter, more and more Netflix subscribers are embracing the streams.
Just 48% of its subscribers may have streamed at least 15 minutes of video during last year's fourth quarter, but Netflix sees two-thirds of its base streaming by the end of this year.
The wrench in Redbox's plan is more of a toolbox, though. Where is the digital library? Where is the arsenal of video game consoles, Blu-ray players, DVRs, and connected set-top devices to stream Redbox flicks through television sets? Where are the peace pipes to hand out to the studios it was suing a year ago?
Redbox may be introducing a heck of a plot twist to Netflix's story, but this is a character that lacks the development to pull this off.
Can Redbox seriously threaten Netflix's model? Share your thoughts in the comment box at the bottom of this queue.