Redbox Unveils Pricing on Instant by Verizon Streaming, Readies Beta
Under new content deals, major studios will pay Redbox Instant by Verizon per-subscriber fees to give the new streaming service incentive to add subscriptions, said Scott Di Valerio, chief financial officer of Redbox parent Coinstar, Wednesday at the Wedbush Capital conference in New York. Like standard content deals the studios have with Netflix and Amazon, Redbox Instant by Verizon also will pay the studios upfront fees, but the new streaming service hopes the per-subscriber payments, small as they might be, could potentially spur a new round of content competition, Di Valerio said.
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With studio agreements in hand, Redbox Instant by Verizon on Wednesday unveiled pricing, charging an $8 monthly fee for unlimited streaming and the ability to rent up to four DVDs a month from Redbox kiosks. A Blu-ray option will cost $9. There also will be an online store where newer movies can be downloaded for purchase or rental. A streaming-only option will be available for $6 a month. Epix, the VOD subscription service that has the financial backing of Paramount, Sony and Lionsgate, is among the first suppliers for Redbox Instant by Verizon. Coinstar said Redbox Instant by Verizon will start a public beta test of the service late this month, apparently ahead of Verizon’s forecast last week for testing to begin in January. The joint venture will pay for content as it attracts subscribers and Coinstar will get a transfer fee, Di Valerio said.
"The studios’ mindset is they want to dis-aggregate” video streaming “to make sure they can have as much power” as possible, Di Valerio said. “So they want to have five to six people competing. This is one way they can do that because you can get more people into the game on a per-subscriber basis and that allows companies to battle each other” for customers, he said.
To take part in its joint venture with Verizon, Coinstar paid $14 million in February and another $10.5 million in Q3 ended Sept. 30, the company said in an SEC filing. Verizon, which owns 65 percent of Redbox Instant by Verizon, can acquire Coinstar’s 35 percent of the venture in February 2017, Coinstar said. Coinstar has the option to buy Verizon’s stake two years later, it said. Coinstar recorded a $4.9 million loss in Q3 for its share of Redbox Instant by Verizon operations, it said. For the first nine months of 2012, the loss was $12.2 million, it said.
Di Valerio downplayed the possibility that Redbox Instant by Verizon could cannibalize the Redbox kiosk business. Though the average Redbox kiosk customer rents titles four times a year, Redbox Instant by Verizon could “bring them in on a more regular basis,” Di Valerio said.
Coinstar’s new Redbox revenue-sharing agreement with Warner, which takes effect in January, requires $246.4 million in purchases under a pact that expires Dec. 31, 2014, Coinstar said. The new contract shrinks to 28 days from 56 days under an old pact the release windows when Redbox kiosks can start renting Warner titles.
Meanwhile, Coinstar plans to have converted by year-end a majority of the former Blockbuster Express DVD kiosks it acquired for $100 million from NCR earlier this year, Di Valerio said. Coinstar bought 6,200 kiosks, 2,200 of which were replaced in Q3, while another 800 were closed, the company said. About 3,200 of the remaining Blockbuster Express were in service as of Sept. 30. About 2,000 former Blockbuster Express locations will remain once Q4 conversions and shutdowns are complete, Di Valerio said. About half of those will be converted to Redbox, he said. Most of the former Blockbuster Express kiosks converted are in Safeway and Publix supermarkets, the company has said. The former Blockbuster kiosks produced $14.5 million in Q3 revenue for Coinstar on rentals of 4.9 million units, the company said. While Blockbuster Express kiosks generated about half the annual revenue of a Redbox kiosk, those that have been replaced quickly have been found to achieve Redbox levels, Di Valerio said. Redbox, which had 42,400 kiosks as of Sept. 30, posted $59.7 million in Q3 operating income, up from $52.5 million a year earlier as revenue rose to $459.5 million from $389.8 million.
Coinstar also has renamed its Gizmo CE kiosks Orango and is operating them in 20 to 25 H-E-B grocery stores in the San Antonio and Los Angeles markets, Di Valerio said. The kiosks typically are stocked with 25 to 30 refurbished CE goods such GPS receivers and notebook PCs that are sold at 30-40 percent discounts off the retail prices for new models, Di Valerio said. Coinstar also increased its stake in ecoATM, which recycles cellphones, by $10 million in Q3, increasing its “other” equity investments to $13.8 million as of Sept. 30, the company said. EcoATM has “a little” more than 200 kiosks, including those at Nebraska Furniture Mart, Di Valerio said. Di Valerio declined to disclose the size of Coinstar’s total investment in ecoATM.
Coinstar’s new ventures unit, which includes Gizmo CE and Seattle’s Best kiosks, posted a $6.5 million operating loss, up from $4.4 million a year earlier, despite a gain in sales to $408 million from $310 million. Coinstar has had some early success with the Redbox Tickets service that’s available through 650 kiosks in the Philadelphia area, Di Valerio said. Redbox Tickets typically takes charge of unsold tickets for a given event, he said. Redbox Tickets accounted for 10 percent to 12 percent of the tickets sold for a Carrie Underwood concert in October in Philadelphia, the majority of them purchased online, Di Valerio said. The service will be expanded to Los Angeles in 2013, Di Valerio said. Redbox Tickets charges a $1 service fee on purchases and Coinstar is paid a commission on each sale, he said.