At a time when the DVD appears to be dying, Redbox has acquired NCR's entertainment business for $100 million.
NCR is a company that specializes in automatic teller machines and retail kiosks. If you used one of those self-serve ticket machines at an airport, chances are you've used an NCR product. The company began operating more than 10,000 Blockbluster Express DVD kiosks after acquiring the brand from the original Blockbuster video rental service (Blockbuster went bankrupt and the brand and some of its stores were acquired last year by the Dish Network). Apparently, NCR couldn't make a go of it.
In October, Homemediamagazine.com reported that NCR saw a $13 million operating loss for the business unit on sales of $42 million for the third quarter. The company said then it expected a $60 million operating loss for the full fiscal year.
According to the press release issued today by Redbox and parent company Coinstar, the transaction with NCR is expected to close in the third quarter of 2012.
"The acquisition includes the purchase of the DVD kiosks, certain retailer contracts, and DVD inventory," Redbox said in a statement. "In connection with the asset purchase, Coinstar and NCR also will enter into a strategic supplier arrangement where Coinstar will purchase product and services from NCR."
Redbox is doubling down on DVDs at a time when video-renting rival Netflix is acting as if the discs are all but dead. Two weeks ago, during Netflix's conference call with analysts to discuss the company's fourth-quarter earnings report, Netflix CEO Reed Hastings said: "We expect DVD subscribers to decline steadily every quarter, forever."
The way Netflix tells it, the public has lost interest in DVDs. Last year, Hastings came close to spinning off his DVD operations under a different brand (Qwikster) . He cancelled the plan when Netflix subscribers began dropping the service in disgust and when the company's stock began to plummet. The episode didn't stop him from declaring repeatedly that streaming video over the Web is the future of home-video entertainment.
Some analysts and Netflix critics have cautioned that plenty of people still want DVDs and argue plenty of profit can be found in renting them.
Coinstar and Redbox obviously agree with that.
Of course, Redbox announced today that the company is also joining forces with Verizon to create an on-demand video streaming service similar to Netflix's service. Since the companies were offered few details about the startup, it's hard to say what it's chances might be. Regardless, the joint venture has plenty of ground to make up.
Netflix is in command of the Web-streaming sector and Hastings needs the DVD to finally get out of his way. If more consumers give up on DVDs and opt for Internet streaming, then at this point Hastings can be confident that they will choose his service.
None of the competing services are accessible on as many devices. His service is available on hundreds of Web-connected TVs, phones, video game consoles, and set-top boxes. As for price, none of Netflix's competitors can offer as much content for as little money--although Amazon is getting closer. Netflix's offer all-you-can-eat streaming for $8 per month.
Netflix's Achilles' heel is its overabundance of dated titles. A subscriber can grow tired fairly quickly of the company's streaming selection.
Nonetheless, I doubt that Verizon and Redbox will be able to match Netflix's selection for as little money any time soon.
They will face the same problems that have confronted other Netflix rivals.
It's true that the major studios and the producers of popular TV shows want to see more competitors enter the streaming sector. What they don't want is for these competitors to offer popular shows and films for what Netflix charges. As of this month, Netflix can offer relatively newer titles from only one of the six major Hollywood studios (Paramount).
Meanwhile, the studios are trying to get Web video services to offer streaming movies for sale. If these services want to rent, fine, but why not rent individual movies for $3 or $4 a pop, instead of renting them at a bulk rate, which is what Netflix does.
The problem for Netflix challengers, the ones who have tried offering movies in this way, is that they have struggled to find an audience. Has Netflix already got us hooked on the company's brand of subscription viewing?
It's probably too early to determine that. What we do know is that Redbox managers seem resolved to seize control of what remains of the DVD-rental sector. And Hastings appears satisfied to let them have it.