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Verizon, Redbox Go After Netflix With New Video Service

February 6, 2012

One day after Netflix unveiled its first original series, Verizon and Redbox owner Coinstar announced plans to launch their own joint venture, which will offer DVD rentals and streaming video.

The service will launch in the second half of the year, and it will combine Redbox DVD and Blu-ray rentals with an on-demand streaming and download service from Verizon. Due to "competitive concerns," however, Verizon and Coinstar declined to provide details on exactly what they will offer or how much it will cost, and did not take questions during a Monday morning conference call.

"Verizon is embracing streaming, a platform that many view as a disruptive force in our industry, as a great opportunity for innovation and leadership," Bob Mudge, president of Verizon consumer and mass business markets, said during the call. "By teaming with Redbox, we deliver the kind of consumer-empowering service that customers expect from companies like ours."

Redbox has DVD kiosks in supermarkets, drug stores, and other locations nationwide. Customers can reserve movies or games on their computers or smartphones, pick them up from a nearby location, and return them when finished. According to an NPD survey from last month, Redbox is now the most popular source of DVD and Blu-ray disc rentals.

Verizon's cable service offers on-demand content, while FiOS customers can also tap into Flex View, which lets users buy or rent movies and watch them on portable devices.

Today's announcement is a joint venture between the two companies under which Verizon will have a 65 percent ownership and Redbox will hold 35 percent.

Reports of a Verizon streaming service first emerged in December. At the time, however, there were rumors that Verizon was actually going to purchase Redbox rival Netflix. But Fran Shammo, Verizon's chief financial officer, basically shot down that rumor during a January investors conference and hinted at the Redbox deal.

"There's been a lot of rumors in the marketplace about what I'm buying and what I'm not buying: I'm not buying anything," Shammo said at the time. "We are looking at a lot of different opportunities, but I would say they're opportunities more from a partnership or a revenue-sharing opportunity. This is not me going out and buying something. If I look at this, this is still a search-and-seek type effort about what do we want to do, what works for us."

Battling Netflix
Netflix had a rocky year in 2011. Price changes and confusion over plans to split its DVD and movie streaming businesses resulted in a loss of about 800,000 customers during the third quarter. But its most-recent earnings report showed a bit of a rebound, thanks in part to holiday gift subscriptions.

In a letter to shareholders, Netflix said its biggest competitors in the coming years will be cable companies that embrace the "TV Everywhere" model, which allows cable customers to access content on the Internet.

Netflix said most of its current effort is on streaming and securing additional licenses to boost content. That includes original programming, the first of which is now available on Netflix Watch Instantly. Lilyhammerannounced last month, stars Steven Van Zandt, of Sopranos and E Street Band fame, as a Frank "The Fixer" Tagliano, a New York mobster who enters witness protection in the Norwegian town of Lillehammer—or Lilyhammer, as Frank refers to it. He has visions of "clean air, fresh white snow and gorgeous broads," but that's not quite what he gets.

The full, eight-episode run of Lilyhammer is now available. It is also airing on Norwegian TV, Netflix said in a blog post, and has become the most-watched TV show in Norwegian history.

"We are trying to give our members what they want; Choice and control," wrote Ted Sarandos, Netflix's chief content officer. "If you want to watch one episode a week, you can. If you want to watch the whole season this week, you can do that too."

Later this year, Netflix will also air House of Cards. The show, which is based on a BBC mini-series from the 1990s, will star Kevin Spacey as a politician with his eye on the top job in U.S. politics. Next year, Netflix will also air new episodes of the critically acclaimed but short-lived series Arrested Development.




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