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3 Reasons Why Netflix Killed Redbox Instant

By Rick Munarriz - Oct 10, 2014 at 6:00PM

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Outerwall and Verizon kill Redbox Instant. It's a mercy killing at this point.

Another potential Netflix ( NFLX -3.31% ) challenger bites the dust. Verizon ( VZ -2.69% ) and Redbox parent Outerwall ( OUTR ) shut down Redbox Instant on Tuesday. The platform that rolled out in beta in late 2012 before launching nationally early last year never really had a chance.

I wasn't the only one that figured that the service would be doomed from the start. A lot of people figured that it was on borrowed time before it began streaming. Let's go over a few of the reasons why Verizon and Outerwall never stood a chance in this expanding yet challenging market.

1. Redbox Instant arrived too late
You don't have to be the first disruptor on the scene to succeed, but you aren't likely to succeed if you're one of the last to arrive. Outerwall and Verizon should've known better. Redbox is the leading DVD rental chain, thriving at a time when Blockbuster folded and even Netflix has shed millions of disc-based subscribers. Verizon is a wireless giant, fully aware that mobile video streaming is a major component of smartphone and connected tablet usage.

Outerwall can only blame itself. It was promising investors that it would be rolling out a digital strategy more than four years ago. It kept pushing out the deadline. By late 2011 reports had Verizon and Redbox joining forces to make up for lost time. The partnership was confirmed in February 2012, but the platform didn't begin taking paying customers until early 2013. By then it was too late. Tens of millions of video buffs flocked to Netflix and ( AMZN -1.53% ) between the time when Outerwall was promising a platform and its ultimate arrival. 

2. Selection was a joke
You can't draw an audience without making a major investment in content. Netflix had $7.7 billion -- yes, billion -- in streaming content obligations as of the end of June. Amazon isn't as candid, but it has a healthy slate of content and originals that is not available on Netflix.

What did Redbox Instant bring to the table? Just for austerity's sake, let's single out the five most popular streams according to the site's "top subscriptions" as of Tuesday afternoon.

  • Grace Unplugged
  • All is Lost
  • The Big Wedding
  • Black Rock
  • The Frozen Ground 

It's a pretty obscure lot. The five films combined for roughly $30 million in domestic box office receipts according to 

Redbox Instant also emphasized movies at a time when binge viewing of earlier seasons of TV shows make up a good chunk of the Amazon Prime Instant and Netflix viewing experience. In short, it was never going to work.

3. Redbox Instant was an inconvenient gateway drug
Outerwall has always been a kiosk operator. Its Redbox machines crank out DVDs, Blu-ray discs, and video games. Its Coinstar kiosks turn coins into store credit. If it seems as if it was dragging its feet to initiate its digital strategy in the first place, it's because Outerwall knew that if Redbox Instant was too successful, it could cannibalize physical disc rentals.

Outerwall tried. Redbox Instant came with four nightly Redbox kiosk credits. However, even with Netflix and Amazon Prime increasing rates for new subscribers earlier this year the value proposition of Redbox Instant failed to resonate with consumers because Outerwall and Verizon weren't putting serious muscle behind the initiative. 

Unlike Netflix, which chose to burn its boats when it decided to tackle streaming, forgoing its cash cow DVD business in the pursuit of being the leader in digital delivery, Redbox Instant came off as almost a belated afterthought. Whether Outerwall was afraid of Redbox Instant becoming too successful or not, it just never armed it with the content library and promotional muscle necessary to make it work. 

Don't shed a tear for Redbox Instant. Outerwall and Verizon never gave it a chance to matter.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
$641.90 (-3.31%) $-21.94
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$50.27 (-2.69%) $-1.39
Coinstar, LLC Stock Quote
Coinstar, LLC
OUTR, Inc. Stock Quote, Inc.
$3,507.07 (-1.53%) $-54.50

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