Verizon's Redbox Instant streaming plan takes on Netflix

Redbox, a company that specializes in the rental Redbox, a company that specializes in the rental of DVDs, Blu-ray Discs, and video games via automated retail kiosks. Photo Credit: Handout

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Redbox Instant by Verizon, the digital movie venture preparing to start service, gained rights to stream films from Paramount Pictures, Lions Gate and Metro-Goldwyn-Mayer, a step toward competing with Netflix Inc.

Owned by Coinstar Inc. and Verizon Communications Inc., Redbox Instant will stream newer films such as "The Hunger Games" and offer four DVD rentals from Redbox dispensers for $8 or $9 a month. Streaming only is $6 a month, Chief Executive Officer Shawn Strickland said in an interview.

The service, 65 percent owned by Verizon, is banking on price and convenience to gain a foothold in the budding online video market. In addition to offering subscription streaming and DVDs for half the price of Netflix, Redbox Instant will sell and rent new releases from most major studios. Strickland is targeting Redbox customers who watch 58 million DVDs a month and isn't trying to match the TV library of its larger rival.

"We really think we have a unique value proposition," Strickland said in an interview. "We are very focused on the movie-lover segment. We're not trying to be all content to everybody."

Redbox Instant is being tested by about 2,000 employees of New York-based Verizon, the second-largest U.S. phone company. It will expand to as many as 100,000 customers in a limited public test before year end, Strickland said. A full commercial rollout is anticipated for the first quarter of 2013, he said.

STUDIO AGREEMENT

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The streaming accord is with Epix, the premium pay-TV channel owned by Viacom Inc.'s Paramount studio, Lions Gate Entertainment Corp. and MGM Holdings Inc.

Redbox Instant will pay Epix based on the number of subscribers, Strickland said. The service will have new Epix releases on the same basis as Netflix, or 90 days after they premiere on the pay-TV channel, along with catalog titles. In all, the service will offer about 5,500 older titles for streaming, including from Time Warner Inc.'s Warner Bros.

Movies from Lions Gate, Paramount, Warner Bros., Comcast Corp.'s Universal Pictures, Sony Corp. and Relativity Media LLC will be available for purchase and on-demand rental.

"We're focused on movies that really matter to the marketplace and the consumer," Strickland said.

CONTENT STRATEGY

Netflix had 27.5 million U.S. streaming and mail-order DVD subscribers as of Sept. 30. Last week, the Los Gatos, California-based company signed an agreement for exclusive access to Walt Disney Co. films in a time period usually reserved for premium cable networks like Starz. Netflix has agreements for popular TV shows like "Mad Men" and is also producing exclusive content.

Netflix, the largest video-subscription service, is spending about $2 billion a year to acquire content and produce original programming, CEO Reed Hastings said in October.

"By and large we are partnering," Strickland said. "We're not entering this business with a model that involves making big investments in content."

Coinstar, based in Bellevue, Wash., rose 0.8 percent to $50.81 Tuesday in New York and has gained 11 percent this year. Verizon, based in New York, advanced 0.9 percent to $44.44 and has gone up 11 percent in 2012. Netflix added 1.5 percent to $86.08 and is up 24 percent.

Redbox Instant is taking a deliberate approach to work out any kinks in the service before it is opened to the public, Strickland said.

"We want to make absolutely sure all of the assumptions we made as we built it will play out in the marketplace," Strickland said.

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