Netflix Has No Need to Fear Redbox

It's too little, too late for the kiosk king's big streaming-video plans

   

Coinstar’s (NASDAQ:CSTR) Redbox video-rental kiosk business is finally going head-to-head with the sector’s reigning king, Netflix (NASDAQ:NFLX).

Redbox said last week that it would finally be starting up its own streaming video rental service in which subscribers could access both streaming video online as well as DVD and Blu-ray disc rentals at Redbox’s 24,000 kiosks.

It’s too bad that Redbox is late to the streaming video party.

Netflix’s subscriber base grew to 20 million by the end of 2010 — it’s no wonder that almost every business making money off home video rentals and sales is rushing to match that company’s proven business model.

Within the last 12 months, an ever-rising number of streaming video services have either been announced or started: Big box retailers Best Buy (NYSE:BBY) and Wal-Mart (NYSE:WMT) both opened pay-per-view streaming video web businesses last year. The News Corp (NYSE:NWS), General Electric (NYSE:GE), and Disney (NYSE:DIS) Hulu venture opened its Hulu Plus advertising-supported subscription service to the general public last fall, offering an expanded selection of television and movie content.

Google (NASDAQ:GOOG) even began offering full movies from select movie studios through YouTube last fall, and Time Warner (NYSE:TWX) announced that it would be offering on-demand video just 60 days after those films are released in theaters. Even Sears (NASDAQ:SHLD) has gotten in on the action, announcing streaming rental service Alphaline Solutions in a partnership with Rovi’s (NASDAQ:ROVI) Sonic Solutions (NASDAQ:SNIC) unit.

Redbox does have something those other fledgling streaming services don’t, thanks to the strength of the Redbox brand. The kiosk business saw impressive quarterly jumps in revenue with 31% growth, suggesting that people are renting DVDs from Redbox vending machines with increasing frequency.

But that success likely won’t translate to its streaming business — at least, not without exclusive content and competitive pricing. It’s going to be difficult for Redbox to undercut Netflix, which already offers a streaming-only package for $7.99 a month.

Consumers would undoubtedly respond to an $8-a-month streaming subscription from Redbox — provided it also offered access to DVD kiosks for bigger name releases, but Redbox’s content partners would never allow that model. 20th Century Fox, Warner Bros., and Universal Pictures have already put greater restrictions on what they make available to Redbox. Coinstar CEO Paul Davis highlighted those studios’ restriction keeping titles out of Redbox kiosks until the DVDs have been on sale for 28 days as a key reason the company missed its projected earnings in its most recent quarter.

That hesitancy from content partners all but guarantees that Redbox will be unable to secure significant exclusive content that’s not available via Netflix and even other outlets like Hulu.

Although Redbox President Mitch Lowe didn’t go into specifics last week, some speculated that the company would partner with Amazon.com (NASDAQ:AMZN) to broaden the reach of its new streaming service.

Not so — Amazon said Tuesday that it would be opening its own long-rumored streaming service. Subscribers to the Amazon Prime premium service – which had been predominantly a way to get deals on shipping — can now access a library of 5,000 streaming movies that are advertising free.

The market is too crowded for Amazon, Redbox, or any of the others to find an audience. Why get into the business when 20 million consumers already have Netflix?

At the time of publication, Anthony John Agnello did not own a position in any of the stocks named here.


Article printed from InvestorPlace Media, http://investorplace.com/2011/02/netflix-has-no-need-to-fear-redbox/.

©2014 InvestorPlace Media, LLC

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