Coinstar, Inc. (CSTR), Verizon Communications Inc. (VZ): Can Redbox Instant Gain Ground?

When Coinstar, Inc. (NASDAQ:CSTR)’s Redbox entered the market, it had a fresh new approach with a solid value proposition for consumers i.e. access through kiosks and a low price point. However, with the large number of users migrating online, revenue from the DVD business should decline going forward.

Coinstar teamed up with the powerful Verizon Communications Inc.
(NYSE:VZ) with the recent launch of Redbox Instant, to address the trend towards “Over-the-top” media consumption.

Surprisingly, Coinstar, Inc. (NASDAQ:CSTR)‘s revenue from its Redbox franchise overall has shown stellar growth due to the introduction of Blu-ray discs as well as video game rentals. This goes to show that some customers still see some value in the ability to enjoy physical discs of movies that are barely 28-45 days old. But the leader in Internet streaming, Netflix, Inc. (NASDAQ:NFLX) is migrating its DVD users to its online platform, as a result, Netflix (NASDAQ:NFLX) is losing DVD subscribers, but gaining tremendous traction in adding streaming subscribers.

The post beta launch by Coinstar, Inc. (NASDAQ:CSTR) and Verizon Communications Inc. (NYSE:VZ) brings more competition in an increasingly crowded Internet streaming landscape. Other than the price point, there are very few similarities between the offering of Redbox and other competitors in the space including Netflix, Hulu Plus and Amazon (NASDAQ:AMZN) Prime.

The size of Redbox Instant’s content library is barely a fraction of its competitors, with roughly 4,600 titles, along with 4 online credits which will enable users to redeem a movie at Redbox kiosks. However, the credits from the $8 monthly subscription cannot be used to rent games, which would have been a great bait for getting incremental subscribers for the service.

On a comparative basis, Amazon.com, Inc. (NASDAQ:AMZN)‘s Prime offering has more than 38,000 movies and TV episodes, and Netflix has an estimated content base of well over 60,000. And Amazon’s Instant Video contains more than 150,000 titles that users can buy or rent, which even includes new release movies and even day after air shows.

Whereas on Redbox Instant if users don’t want a subscription they can rent newer movies from the online store from prices of $1 and upwards, which now has only ~4000 movies available on demand. Selling movies on demand through the Internet will certainly reduce user traffic to the physical Redbox kiosks.

And the Redbox Instant offering is mostly movies, which differs substantially from the other Internet streaming services, all of which have very heavy TV show viewers. Netflix has stated that almost two-thirds of its total viewing is from TV shows alone.