Redbox Instant Survives the Chopping Block

Redbox Instant will live to see its first birthday after all. Outerwall (NASDAQ: OUTR  ) , which jointly runs the streaming video/DVD service with Verizon (NYSE: VZ  ) , said this week that it is cutting loose a few of its underperforming business ventures . Absent from that list of now-failed experiments was the Redbox Instant service, which hasn't picked up much share in the streaming video market. Instead, Outerwall is axing its Rubi, Crisp Market, and Star Studio ventures to focus more resources on the Redbox DVD kiosks.

That's not to say that Redbox Instant wasn't a target for cuts. In October, an activist investor snatched up 13% of Outerwall's shares, and it publicly pushed management to consider spinning off or shutting down the service. Outerwall didn't reject the idea out of hand, saying at the time that it was "open to constructive input" from shareholders.

There's at least one good reason for Outerwall to consider letting go of that business: Redbox Instant hasn't grown into the Netflix (NASDAQ: NFLX  ) killer that many investors hoped for. A service that paired new release DVDs with a library of streaming content seemed destined to at least chip away at Netflix's hold on the market, but it stacked up poorly against rivals from the start. Redbox struggled through a long beta program, and then launched to lukewarm reviews. That's not much of a surprise considering that, as of late January, Redbox Instant offered just a dozen out of Netflix's 200 most popular streaming titles, all twelve of which were also available on Amazon.com's Prime service .

Plus, by sticking to only movies and video games, Redbox Instant carries none of the episodic TV content that makes up the majority of Netflix's streaming and keeps millions of subscribers coming back to its site on a regular basis. Outerwall has held the line on keeping costs in check for this program too, which removed the option of developing exclusive series as both Netflix and Amazon are doing now. Redbox Instant started off far behind those two market leaders, and the gap has only widened since then.

Despite all of that, Outerwall appears confident that the service will generate a good return on its investment and is a net positive for the business. But it's not Outerwall's decision alone. Verizon owns 65% of the venture, and will probably have a big say over whatever path Redbox Instant takes going forward. 

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  • Report this Comment On December 10, 2013, at 2:48 PM, AndreWilliamson wrote:

    "Verizon owns 65% of the venture, and will probably have a big say over whatever path Redbox Instant takes going forward."

    Are you sure?

  • Report this Comment On December 11, 2013, at 8:33 AM, TMFSigma wrote:

    Hi Andre, that's right. From Verizon's 10-K:

    "Verizon holds a 65% majority ownership share in the venture and Redbox holds a 35% ownership share. "

    Best,

    Demitri

    @TMFSigma

  • Report this Comment On January 19, 2014, at 12:04 PM, kyrifles wrote:

    I've always held that Netflix is safe from competition because nobody's willing to spar with them over a zero margin business. As long as Netflix makes no money, viable competitors will be scarce, because nobody want to overpay Hollywood for streaming rights just to lose billions of dollars a year.

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