Redbox Is Running Out of Time to Kill Netflix

Verizon (NYSE: VZ  ) and Redbox parent Coinstar (Nasdaq: CSTR  ) have been targeting the second half of this year as the time to launch their streaming video partnership, and it's taking steps to get there.

The RedboxInstant.com website is now up, though it's little more than a landing page with a sign-up box for interested visitors to be notified when the service launches.

"DVDs at the kiosk + instant streaming hits, all in one fist-pumping package," reads the service's tag line, confirming that the service will blend movie discs from the Coinstar's growing network of Redbox kiosks and digital video.

There are clouds in the background, clearly illustrating the cloud-based nature of the streaming service.

We don't know anything about the pricing, but an interesting point is that the landing page ad kicks off with "Instant High Five" as its largest letters. Combine that with the "fist-pumping" reference in the tag line, and could the two companies be telegraphing a $5 price point?

It would seem to be too good to be true. Could a service truly blend physical DVDs and streams at that price? Netflix (Nasdaq: NFLX  ) -- with economies of scale working in its favor -- couldn't do it at twice that price, so it tweaked its pricing model even higher last summer.

However, let's not dismiss $5 a month as lunacy. Redbox was surveying some of its customers two years ago, asking them what they thought of a plan -- at $3.95 a month -- that would include unlimited streaming and four nights of disc rentals. (For example, you could rent four discs for one night each, or two discs for two nights each, or one disc for four nights, etc.)

Now, a couple of things have happened since then. For starters, the price of an overnight Redbox rental went up 20% to $1.20 this past October. That would be enough to justify moving from $3.95 a month to a round $5 ransom to cover four physical nightly rentals.

You also have the opportunity that is presenting itself with Netflix's 60% increase for the plan that would include unlimited streaming and at least four disc rentals. Sure, Netflix disc rentals don't have to be returned the next day. Someone holding on to a Redbox rental of The Artist over the Thanksgiving holiday weekend would be out of that month's allotment.

Redbox can't go hog wild on the pricing. Amazon.com (Nasdaq: AMZN  ) is keeping prices low by launching its streaming service at no additional cost to customers paying $79 a year for Amazon Prime.

If Verizon and Redbox really want to make a difference they will need to rekindle a value proposition, and five bucks would go a long way toward making that happen.

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The Motley Fool owns shares of Amazon.com and Netflix. Motley Fool newsletter services have recommended buying shares of Netflix, Coinstar, and Amazon.com. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz has been a Netflix subscriber and shareholder since 2002. He does not own shares in any of the other stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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