Redbox: Soon to be New Player in the DVD Movie Streaming Wars
Elizabeth is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Netflix, Hulu, Amazon (NASDAQ: AMZN), Blockbuster, and Dish Network (NASDAQ: DISH) are just a few of the big names that stream media to you via the internet to your TV, Blu-ray player, Roku, Apple TV, computer, or iPad. Starting spring of next year, there might just be another to add to that list: Redbox.
We're all familiar with Redbox. They're the shiny red kiosks located in grocery stores, drug stores, and even fast food establishments that spit out DVDs, when you feed them a buck. Actually $1.20 now. Redbox kiosks also dispense Blu-ray discs and video games for $1.50 and $2.00, respectively.
Redbox is indeed a major player. According to market reserach company, NPD Group, a whopping 68 percent of people in the U.S. live within a quick five-minutes drive from one of the over 33,000 Redbox rental kiosks. NPD further reports that Redbox boasts over 34 percent market share in terms of rental discs. Other NPD statistics reveal that DVD rental kiosks have a 36 percent share of the rental disc market, while discs-by-mail are still holding on at 38 percent of the market. Disc rentals in traditional stores have slipped to 25 percent of the market -- all as of the second quarter of 2011.
Redbox and Verizon Partnership
Amid the news that a potential partnership between Redbox and Verizon (NYSE: VZ) for streaming tv and videos is likely coming, Coinstar's shares rose over 10 percent. Reports suggest that the partnership streaming could begin as early as May of next year. With Verizon's delivery structure and current customer base coupled with Redbox's highly recognizeable brand, the duo promise to be a pair difficult to contend with.
So, how does Coinstar (NASDAQ: CSTR) come into the equation? Redbox is a subsidiary of Coinstar, Inc. and represents its major revenue producer. Thanks to new kiosk installation and existing store growth, for its 2011 third quarter, revenue increased over 22 percent when compared to the same time the year before. To date, Coinstar's Redbox rental business has surpassed $1 billion in revenue. Part of Coinstar's success, lies in its contracts with big foot-traffic companies, such as Wal-Mart (NYSE: WMT), Walgreens (NYSE: WAG), and McDonalds (NYSE: MCD), where its kiosks are strategically placed.
While their coin services business is their oldest and most established product line, it represents less than 20 percent of Coinstar's revenue for the three months ending June 2011. On the other hand, Coinstar's DVD service represents over 80 percent of its $435 million revenue. Coinstar's other sources of revenue include e-payment and money transfer services.
In early 2011, a new -- and mysteriously named -- segment, called "New Ventures" was added to the mix.
Fee Structure
What's left for investors and consumers to wonder in the streaming wars, especially with a new and promising big player coming to the battle? The fee arrangement that Redbox/Verizon will use is a biggie. Will there be a monthly subscription fee -- like the $8 fee Netflix (NASDAQ: NFLX) charges -- where you can stream as much as you can consume? Will it be an ad-based option? Hulu (the free version) makes you watch 30 seconds to a minute ads in order to see the latest episode of The Office. (This is still better than watching three- to four-minute commercials in my book). Hulu Plus is a penny cheaper a month than Netflix, charging subscribers a strategic price of $7.99 a month. Or will there be a pay-per streaming event like Amazon uses? Of course, Amazon lets its Prime members stream for free.
So far, Coinstar/Redbox has managed to stay under the radar while avoiding any major blunders (remember the Netflix Qwikster fiasco?) If they take a lesson from one of their strongest competitors, they will continue to do so -- all the while quietly increasing revenue and gobbling up market share.
Fool blogger Liz Magill owns no shares in any of the companies mentioned above.
