Redbox and Verizon are moving closer to the launch of a new streaming service to compete with Netflix, Amazon Prime Instant Video, and other online video companies. Today, they announced that they signed up their first studio partner: Warner Bros., which as part of the deal also worked out a 28-day delay for availability of its DVD titles.
The Redbox Instant by Verizon joint venture was announced earlier this year, and is currently in internal beta testing, according to Redbox parent Coinstar. Redbox hasn't yet announced pricing or availability for the service, but expects to launch it to the public by the end of the year. However, consumer response to the service will of course be driven mostly by content. That's where Warner Bros. comes in.
Warner Bros. agreed to a deal with Redbox Instant by Verizon that will give the new service access to content from its film library. That will include video-on-demand (i.e. online rental) and electronic sell-through (i.e. online purchase) of its new release titles, as well as subscription VOD access to some of its content in later windows. At the same time, Redbox has agreed to a 28-day delay for rental of new Warner Bros. DVDs in its rental kiosks.
On the earnings call, Coinstar execs gave some color into how the negotiations were done. The Warner Bros. agreements weren't done together, but were actually negotiated by different teams on both the Redbox and the Warner Bros. sides. Interestingly enough, the content acquisition deals for Redbox Instant are being negotiated on a per-subscriber basis, unlike Netflix and Amazon, which agree to license fees upfront. That will allow the joint venture to limit its upfront investment in content, while allowing content owners to see more upside as Redbox Instant adds new users.
The new content deal comes as Redbox saw a lower-than-expected summer rentals, which it attributed to seasonality due to the Summer Olympics, as well as a weak slate of films hitting its DVD kiosks. It reported revenue growth of about 18 percent to $459.5 million, which also included the addition of NCR kiosks to its portfolio. Excluding that, revenue grew 14.2 percent to 445.1 million. Redbox said it gained share in the physical rental market, growing 9.4 percent to 44.1 percent share when compared with Q3 last year.
Coinstar said there were 23 percent fewer new theatrical titles in the summer months, however, leading to 34 percent fewer product units going into kiosks during the period compared to last year. And only three of those pulled in more than $100 million in theaters: Safe House, The Hunger Games, and The Lorax. The Olympics also impacted its rentals, but Coinstar said it wasn't alone: The Summer Games depressed all video entertainment channels during the two or three weeks that they took place.
Redbox Automated Retail, LLC, a wholly owned subsidiary of Coinstar, Inc. (Nasdaq: CSTR), offers new-release DVD, Blu-ray Disc™ and video-game rentals through its network of conveniently located, self-service kiosks. Redbox has rented more than 2 billion discs and is available at approximately 38,500 kiosks across 31,500 locations nationwide, including leading grocery, drug and convenience stores, and select Walgreens, Walmart and McDonald's locations in some markets. For more information, visit redbox.com.
Warner Brothers is a subsidiary of Time Warner, and one of the largest film and TV producers.
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