Verizon-Redbox Pairing Brings New Buyer to TableStudios welcome streaming service that could drive up prices for TV shows and movies 2/13/2012 12:01:00 AM Eastern
Studios are welcoming the arrival of
Verizon and Coinstar's joint venture,
which is expected to bring a hungry
new customer to the marketplace and potentially
drive up prices for TV shows and movies.
"This gives us more opportunities to reach the
consumer," says one studio executive. "We're in
the business of monetizing our content. The
more people watching, the more opportunity
we have to get paid."
The joint venture, scheduled to launch in the
second half of this year, will be an over-the-top
subscription video-on-demand provider intended
to compete head-to-head with Netflix and less
directly with other online on-demand video
services such as Amazon Prime, Dish Network's
Blockbuster and Walmart's Vudu.
Coinstar owns Redbox, whose kiosks sit outside
neighborhood grocery stores and offer customers
DVD rentals for $1.20 each. The service
is going like gangbusters—in last week's quarterly
earnings statement, Coinstar reported that its revenue surged 40% to
$445.6 million in 2011's fourth quarter. Wall Street is hugely bullish on the
service, and they are hopeful regarding the upcoming streaming venture.
"They have a chance with the joint venture, but that chance will depend
entirely on how good the content is that Verizon brings to the table," says
Andy Hargreaves, senior research analyst at Pacific Crest Securities. "What's
interesting about Verizon as opposed to Amazon is that Verizon has a lot of
content deals that it's already done for its FiOS [broadband cable service].
If they are able to repurpose some of that content, they'll be able to launch
with much broader and higher quality content than Amazon."
In most cases, repurposing content will require renegotiating contracts
with providers because Verizon's original contracts for carriage on FiOS
don't include streaming rights, say observers.
The leader in this category is Netflix, which
has been on a spending spree over the past
year—acquiring such product as Lionsgate's Mad
Men, The CW's primetime dramas and many
other shows—to the delight of the Hollywood
studios. Increasingly, Netflix is acquiring content
on an exclusive basis, which is the case for The
CW deal, but that hasn't been a priority.
But exclusivity may be the key going forward.
With more of these services coming online, each
of them will need to distinguish themselves in consumers'
minds. One way to do that is to offer original
content, as Netflix has started doing with such
shows as Lilyhammer and the upcoming House of
Cards. But another way is to offer customers TV
shows and movies they can't get anywhere else.
"I think their purchases have been very
adroit," says one studio executive of Netflix. "But
the fact that they are not paying…to get their
content exclusively really has given their competitors
an enormous advantage. If everything
that Netflix has bought was exclusive right now, Coinstar and Verizon
could never even get off the ground."
And while studios want to get top dollar for their TV series and movies,
some executives say they are also interested in keeping the entire market
healthy. Keeping these new services in business over the long term is more important
to studios—especially those making multi-year deals—than selling
them content they won't be able to support down the road.
For now, though, the arrival of another new player means "the price of
content is going up," says Daniel Ernst, principal and consumer technology
analyst with Hudson Research Group.