After months of rumblings, and the rumor of a Dec. 17 release date for Coinstar's (NASDAQ:OUTR) Redbox Instant, the service's release is now expected to be delayed until some point in 2013. The new product, a joint venture with Verizon (NYSE:VZ), positions the two companies in direct competition with Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN). Furthermore, it's placed at the center of one of the most critical areas of entertainment. Where Netflix was once considered the only viable option, helping to make it a market darling, management missteps opened the door wide enough that the battle is in full gear. Ultimately, Redbox has the potential to leverage two key strategic advantages that could place it in an enviable position moving forward.
The new service
According to a report posted on the Android Community website, details of the service offering were briefly available on Redbox's website. This "leak" -- which bears no similarity to other inadvertent "slip-ups" that have been highly effective at building hype -- has since been closed. Initial indications suggest that there will be at least three different service levels available to choose from. Basic accounts that give users access to the Redbox library will be $6, while accounts that give users online access plus four prepaid physical DVD rentals per month will be $8. Additionally, there will be a video-on-demand service that will allow users to download movies for $0.99 that will be stored on your device for a set period (this will allow you to watch movie when you are offline, such as on an airplane).
The updated announcement confirms the above details, but pushes the release date back. The cited reason for the delay is the need for additional testing to ensure proper functionality. The expected release date is now being reported as during the first half of 2013, with a push made for the first quarter.
The Android Community site states that "Redbox Instant by Verizon will be available on computers, Android/iOS devices, certain Blu-ray players, Samsung televisions, and the Xbox 360 console." This, of course, begs the question of whether the service will available on Apple devices, or be limited to the Google Android ecosystem. Given the source of the news, the Android Community may be choosing to focus on those Android delivery systems that are expected to be included. On the other hand, the mention of Xbox, a Microsoft product, suggests that availability may be limited. The growing development of Apple TV would also make the service a direct competitor.
Like both Netflix and Amazon, Redbox is expected to receive a fair amount of content from Epix. The Netflix's loss of exclusivity with the content provider has been but one in a series of issues that have allowed competitors to enter the market with strong showings. Thus far, Netflix still commands the lion's share of the market, but increased competition is likely to prove to be a real challenge.
There are two strategic advantages that Redbox possesses as it enters the streaming video battleground: its strong presence in the physical rental space and the relationship it will enjoy with Verizon. To put the rental power of Redbox into context, last August I wrote that "over the past year Redbox has rented nearly 720 million discs generating approximately $1.7 billion in revenue." That success has continued ever since and given Redbox a very solid base from which to make the jump to streaming.
While a presence in physical rental may seem unimportant at cursory examination -- Netflix offers this option, albeit at a higher price -- it is an important add-on feature. The reality is that some movies will make it to DVD before they are available through any streaming service. The patient Netflix user can put the movie in his or her queue, assuming that the additional $8 per month for physical rentals is a part of your account, and wait until in arrives by mail. In the on-demand, "I want it right now" world, even Netflix users have become Redbox customers for brand-new releases. The ability to bundle the two services will likely be a big draw for some.
The other big advantage that Redbox Instant will enjoy is through its partnership with Verizon. While there have been no indications that Verizon customers will receive a pricing or data usage advantage, the option is there. As mobile becomes the make-or-break arena for more and more technologies, a built-in mobile market partner may allow Redbox to offer something than neither Amazon nor Netflix has available. While this seem like a limitation for non-Verizon customers, as its commercials tell us, Verizon currently boasts a bigger 4G LTE network than all others combined. Redbox would gladly capture the Verizon customer base and leave the rest on a numbers basis.
Despite the appeal of this new service, and its potential ability to gain immediate traction within streaming video, Verizon is the better stock play. If the service is an instant success, Coinstar will skyrocket. If it gets a lukewarm reception, both in terms of coverage and sales figures, the stock could languish. Conversely, Verizon will benefit from a big release, but the company has enough insulation from its wireless business to not be badly slowed if the service does not soar. As such, Verizon is a buy on the release of Redbox Instant.
Fool contributor Doug Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com, Google, and Netflix. Motley Fool newsletter services recommend Amazon.com, Google, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.