Watch out Netflix, Verizon Communications is getting into the video streaming business.
Today, Verizon announced a deal with Coinstar, the company that owns the Redbox DVD rental business. Redbox allows people to rent movies through kiosks it owns in grocery stores and other retail locations. As part of the new joint venture, the companies will develop an on-demand video streaming service. The companies will introduce the new service in the second half of 2012, they said in a press release.
Verizon will own 65 percent of the new joint venture, and Redbox will own the rest.
So far, neither Verizon nor Coinstar is offering details regarding the new service. But what seems clear from the press release and the 10-minute, no-questions press conference this morning is that the service will be offered nationwide. This likely means that Verizon will offer the streaming video service to people outside of its traditional DSL and Fios fiber networks. Verizon already offers a full video service in areas where it has deployed Fios. The new relationship with Coinstar will now make it possible for Verizon to deliver video services outside of its footprint.
The companies also said in the press release that the new video streaming service will be available on a variety of devices. This likely means that people subscribing to the service will be able to watch video on TVs, as well as computers, tablets, and smartphones. Coinstar also said that it will continue to operate its Redbox DVD kiosks, giving people access to both streaming services as well as traditional DVD copies of movies and TV shows.
"Together, we are erasing old technology boundaries, freeing people to spontaneously enjoy the entertainment they want, whenever they choose, using the devices and media they prefer, at home or away," said Bob Mudge, president of Verizon consumer and mass business markets.
The strategy sounds similar to what Netflix has been doing. Netflix offers DVD rentals through the mail, but it also allows subscribers to stream video directly to their TVs or other devices like tablets or smartphones. But as Netflix's popularity has grown, the company has struggled to get many of the latest and greatest movies for streaming. Some content owners, such as HBO, have even started to cut-off access to DVDs. And even though Netflix CEO Reed Hastings said that DVD rentals will continue to decline over time, the fact that Netflix can't get some of the most popular and critically acclaimed titles for streaming likely means that DVDs will survive for at least a while longer.
Verizon and Coinstar may face many of the same obstacles obtaining content to stream through its service. This is likely why Coinstar will continue to operate the Redbox kiosks. The problem is that movie studios and other content producers cannot make as much money from streaming videos as they do from selling DVDs. Also, digitally distributed movies may be more easily pirated, which is another reason that many studios limit what they make available for streaming. As a result, content owners are making it difficult for streaming services to offer premium content online.
Verizon has at least one advantage over Netflix. The company also runs its own paid TV service, which means that it's already negotiating deals with movie studios, TV networks and other video content producers for their movies and TV shows. The company may be able to cut deals with the content producers by leveraging existing relationships.
Verizon will also have to be careful in how it markets and delivers the new video streaming service. Verizon and other paid TV providers like to say that streaming services complement their offerings. But there are people who have ditched their TV subscriptions to watch TV via a broadband connection using streaming services. Services like Netflix, Hulu Plus, Amazon and Crackle don't offer everything that a typical paid TV package offers, such as live sports, but it's enough for some consumers.
The new streaming service from Verizon and Coinstar adds another alternative to paid TV service. It's unclear whether Verizon will sell the streaming service in parts of the country where it also offers its Fios TV. If it does, then the new streaming service could compete against Verizon's Fios TV service.
Verizon also recently signed a $3.6 billion deal with cable operators. As part of this deal, cable operators Comcast, Time Warner, and Bright House Networks, will sell 20MHz of valuable wireless spectrum to Verizon. The companies will also jointly sell and market one another's services. For example, this means that Verizon will sell Comcast cable service and Comcast will sell Verizon wireless service. It's unclear how the new streaming video service will fit into this arrangement or whether Comcast will view the streaming service as competition to its video service.
At least one analyst, Kevin Smithen of Macquarie Capital believes that Verizon's move may spur some sort of action from AT&T. Like Verizon, AT&T also offers a TV service in areas where it already offers high-speed Internet access. AT&T could also strike a partnership or develop its own video streaming service to reach more customers outside its broadband and TV footprint. The move also validates satellite TV provider Dish Network's acquisition of Blockbuster content. Dish currently offers the Blockbuster streaming service only to customers who also subscribe to its satellite TV service.
Update 8:37 a.m. PT: This story was updated with background information and analysis.