Netflix Has No Need to Fear Redbox

Coinstar's (NASDAQ: CSTR ) Redbox video-rental kiosk business is finally
going head-to-head with the sector's reigning king, Netflix (NASDAQ: NFLX ).
Redbox said last week that it would finally be starting up its own streaming
video rental service in which subscribers could access both streaming video
online as well as DVD and Blu-ray disc rentals at Redboxs 24,000 kiosks. It's
too bad that Redbox is late to the streaming video party. Netflix's subscriber
base grew to 20 million by the end of 2010 its no wonder that almost every
business making money off home video rentals and sales is rushing to match that
companys proven business model. Within the last 12 months, an ever-rising number
of streaming video services have either been announced or started: Big box
retailers Best Buy (NYSE: BBY ) and Wal-Mart (NYSE: WMT ) both opened
pay-per-view streaming video web businesses last year. The News Corp (NYSE: NWS
), General Electric (NYSE: GE ), and Disney (NYSE: DIS ) Hulu venture opened its
Hulu Plus advertising-supported subscription service to the general public last
fall, offering an expanded selection of television and movie content. Google
(NASDAQ: GOOG ) even began offering full movies from select movie studios
through YouTube last fall, and Time Warner (NYSE: TWX ) announced that it would
be offering on-demand video just 60 days after those films are released in
theaters. Even Sears (NASDAQ: SHLD ) has gotten in on the action, announcing
streaming rental service Alphaline Solutions in a partnership with Rovi's
(NASDAQ: ROVI ) Sonic Solutions (NASDAQ: SNIC ) unit. Redbox does have something
those other fledgling streaming services dont, thanks to the strength of the
Redbox brand. The kiosk business saw impressive quarterly jumps in revenue with
31% growth, suggesting that people are renting DVDs from Redbox vending machines
with increasing frequency. But that success likely won't translate to its
streaming business at least, not without exclusive content and competitive
pricing. Its going to be difficult for Redbox to undercut Netflix, which already
offers a streaming-only package for $7.99 a month. Consumers would undoubtedly
respond to an $8-a-month streaming subscription from Redbox provided it also
offered access to DVD kiosks for bigger name releases, but Redboxs content
partners would never allow that model. 20 th Century Fox, Warner Bros., and
Universal Pictures have already put greater restrictions on what they make
available to Redbox. Coinstar CEO Paul Davis highlighted those studios
restriction keeping titles out of Redbox kiosks until the DVDs have been on sale
for 28 days as a key reason the company missed its projected earnings in its
most recent quarter. That hesitancy from content partners all but guarantees
that Redbox will be unable to secure significant exclusive content that's not
available via Netflix and even other outlets like Hulu. Although Redbox
President Mitch Lowe didnt go into specifics last week, some speculated that the
company would partner with Amazon.com (NASDAQ: AMZN ) to broaden the reach of
its new streaming service. Not so Amazon said Tuesday that it would be opening
its own long-rumored streaming service. Subscribers to the Amazon Prime premium
service – which had been predominantly a way to get deals on shipping can now
access a library of 5,000 streaming movies that are advertising free. The market
is too crowded for Amazon, Redbox, or any of the others to find an audience. Why
get into the business when 20 million consumers already have Netflix? At the
time of publication, Anthony John Agnello did not own a position in any of the
stocks named here.