Verizon, Coinstar Sign Video Streaming Deal

Whether and how the content might extend to wireless is still being finalized, a Coinstar spokesman said. Verizon wireless customers are subject to download caps that could put a damper on wireless video, analysts said. “As for speculation that Verizon might offer a full-fledged wireless video service via Coinstar, Verizon’s current LTE plans are capped at 2 to 5 GB of usage per month, enough for about two to five hours of viewing absent any other activity,” Sanford Bernstein analyst Craig Moffett said.

The service would likely be available through Verizon’s FiOS network as a subscription-only over-the-top application. Coinstar officials have said the titles would likely be available for a set number of days. The venture also will provide access to Redbox’s network of 35,000 kiosks, company officials said.

Verizon will own 65 percent of the venture, while Coinstar has 35 percent. Coinstar will initially provide $14 million toward capital costs, but the amount Verizon will provide hasn’t been disclosed, a company spokesman said. If Coinstar contributes a pro rated share of the first $450 million of capital, its stake in the venture can’t be cut to less than 10 percent, Coinstar said in an SEC filing. The joint venture will be run by a five-member board with Coinstar appointing two managers and Verizon three, Coinstar said. The joint venture will only need capital if it doesn’t make money, which is “troubling,” said Michael Pachter, managing director of equities research at Wedbush Morgan Securities. If the venture is profitable, it can fund capital requirements, Pachter said. Verizon will be able to buy Coinstar’s stake after the fifth anniversary of the venture, or sooner “in limited circumstances,” Coinstar said.

The Coinstar-Verizon alliance appears to put to rest rumors that Verizon would seek to buy Netflix. Instead it will provide a new competitor for Netflix and could signal the arrival of telcos into the video streaming segment where cable and satellite companies already have services, analysts said. “Unless Verizon blows it with marketing or messaging I think they can be successful in this space,” analyst Jeff Kagan said. “After Verizon I expect to see others like AT&T and CenturyLink jump in as well. These are all direct competitors to Netflix in this television space. Netflix now has a target painted on their back."

Coinstar’s Redbox was in “detailed discussions” with potential partners in late 2010 with a goal of introducing a streaming service by mid-2011. But in choosing a subscription service over a la carte, the negotiations involved in securing content rights were more complex, pushing the start service to year-end and now, second half 2012, Coinstar has said. The negotiations also took on added importance as Redbox distribution agreements expired with Sony and Paramount (December) and Warner Brothers (January). Direct distribution pacts with Lionsgate, Paramount and Sony were renewed, while the agreement with Warner ended Jan. 31, a Redbox spokeswoman said. Redbox will continue to make Warner titles available through its kiosks, using “alternative means,” the spokeswoman said.

While the DVD rental kiosks will bolster the Redbox service, “we doubt Verizon really wants their streaming joint venture to include” them longer term, BTIG analyst Richard Greenberg said. “It was a way to get started with a pre-existing user base” of more than 30 million Redbox customers. The venture also risks “diluting” Redbox’s brand, he said.

"We believe the combination of subscription streaming to certain content and a la carte kiosk rentals for other content dilutes their overall brand strength,” Greenberg said. “Verizon already has a national media/communications brand and could easily expand that brand to include nationwide video streaming."