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Can Redbox and Verizon Kill Netflix?

Rick Aristotle Munarriz
February 6, 2012

Soon it won't just be Netflix (Nasdaq: NFLX  ) screaming for your streaming dollar.

Living up to a rumor that began making the rounds late last year, wireless giant Verizon (NYSE: VZ  ) is teaming up with Redbox parent Coinstar (Nasdaq: CSTR  ) to roll out a premium video service during the second half of the year.

Pricing? Content? Flexibility that will include unlimited Redbox disc rentals and streams through Verizon?

You're asking way too many questions, my friend. Details will come later, likely as close to the launch as possible so the new service doesn't tip its hand to the competition.

However, the news was still enough to send Netflix shares slightly lower at the opening. Verizon and Coinstar opened marginally higher.

Suspicious timing
Coinstar has been promising investors a digital strategy for nearly two years. All through 2010 Redbox was hinting at a digital strategy, ultimately telling investors that an announcement would be forthcoming in October of that year.

How much would your Redbox tab be if you were 16 months late on a rental?

Maybe I'm just a cynic, but the timing certainly seems suspect.

Coinstar reports earnings this afternoon after the market close. If the company's Redbox kiosk business is struggling, you'll know why Coinstar wanted to get this news out ahead of the numbers.

After all, this quarter should be a beauty for Redbox. It jacked up its DVD rental prices by 20% in October. Netflix revealed that it shed more 2.76 million DVD plan subscribers during the quarter after its poorly received rate hike. DISH Network (Nasdaq: DISH  ) is in the process of closing more Blockbuster stores and devoting more space in remaining stores to promote its namesake satellite television service.

If the appetite for video on optical discs exists, Coinstar will report monster growth at Redbox. Between bumping overnight rates on DVDs from $1 to $1.20 and folks bailing on other outlets, Redbox should be soaking in an uptick in customers willing to pay more than they used to through the shiny red automatons.


Well, analysts do see revenue climbing nearly 28% at Coinstar in its holiday quarter, though they actually see profitability slipping.