Verizon, Coinstar Testing OTT Service for Launch by Christmas

Get the feeling that the distribution of video entertainment
to the home and to mobile devices is about to go through a
major upheaval?

Verizon and Redbox-owner Coinstar are testing their streaming
video rental service, called Redbox Instant, and it’s expected
to be available in selected markets by Christmas, said Eric
Bruno, Verizon’s VP of consumer strategy and planning, in an
interview with Bloomberg. The move could have major
implications for the home entertainment industry.

An app will be available at Apple, Google and other app stores
that let consumers download titles from Redbox Instant to
mobile devices, game consoles and set-top. It is not clear how
Redbox Instant will get its apps on smart TVs, Blu-ray players
and smart TV adapters, but a bit of time, market pressure and
a pocket of money can solve that.

Bruno said the service, 65% owned by Verizon, will pay content
providers based on the number of subscribers, similar to pay
TV, rather than a set payment for rights to stream content for
a fixed period of time as Netflix does.

There’s still no definite word about exactly what it will
offer and at what price. Initially, it’s expected to be mainly
recent releases that are already being rented or sold, but
ultimately will include streaming subscriptions , movie sales
and rental services, plus DVDs in the almost 40,000 Redbox
kiosks. It’s currently being tested at home by about 500
Verizon employees.

The studio-owned Digital Entertainment Group says the U.S.
market for subscription streaming was $1.1 billion in the
first half of 2012, up five times over a year ago.

With a strong DVD package, attractive rates and an abundance
of movies and TV shows, it could be a strong competitor to
streaming kingpin Netflix and a recently very quiet Dish’s

The next question is what will AT&T and the other pay TV
services do once Verizon starts offering content-for-pay
nationwide. AT&T and Verizon Wireless are fierce, name-calling
rivals in mobile services. They are each trying to establish a
dominant market size and are going directly against each
other, especially in LTE, iPhones and Android phones. It would
not be surprising at some point to see Redbox Instant bundle
in some Verizon Wireless services.

Verizon Wireless and AT&T are already national companies with
hundreds of stores nationwide.

AT&T and Verizon appear to have ratcheted down their efforts
in wireline, what with the large profits to be made in
cellular, the cablecos’ speed advantage in broadband compared
to the telcos’ DSL technology and the declining market for
wireline phone service. There is some speculation that the two
telcos would, if they could, spinout or sell off their
consumer wireline operations, telephony and DSL broadband.

If indeed, the home entertainment industry is moving to OTT
and IP-based TV, then AT&T may want to offer its own OTT
service or partner up with someone like Dish, Apple, DirecTV,
Amazon or Walmart.

Then some cable TV companies, which are entirely regional and
operating in fixed footprints, might feel pressured to offer a
nationwide OTT service. Just a few years ago most of them
thought that they would have to offer a cellular service. When
that failed, they started rolling out thousands of Wi-Fi
hotspots that their and other cablecos’ subscribers can use
for free. They might act separately to launch nationwide OTT
services or somehow band together, assuming they could find a
legal way of doing that. They could also start or acquire an
OTT service and then sub-contract with it for their footprint.
Netflix and Hulu are possible acquisitions.

Options on Coinstar
We don’t know whether Verizon obtained the rights to acquire
Coinstar in the future as part of the Redbox Instant deal. It
already shares ownership in its very profitable Verizon
Wireless operation. It owns 55% and the UK’s Vodafone has 45%.
Rival AT&T owns 100% of its cellular service. If the Redbox
Instant venture is successful, and there is no reason to think
it won’t be, Verizon may wish it had the option to acquire
Coinstar at a pre-determined and reasonable price.

About the Author

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