On the Redbox homepage, the DVD rental firm owned by Coinstar Inc. (NASDAQ: CSTR) has begun to promote a streaming movie service it plans to launch with Verizon Communications Inc. (NYSE: VZ) on the carrier’s Internet network: “Everything you love about Redbox — Plus unlimited movies, instantly!”
The new service calls itself Redbox Instant by Verizon. The challenge facing the service is that it is behind a very long line of similar services that have, among them, a high penetration of the U.S. residential market. That will make the failure of the new venture almost certain.
Businesses have forever wanted to enter services they believe will be successful because similar existing businesses make money. The pull to do this can be almost irresistible. Why give up on a market that is well-established and already accepted by consumers? The answer is that a market can only accept so many competitors, and the last in have huge disadvantages.
The most obvious success in the streaming video business is Netflix Inc. (NASDAQ: NFLX), an online DVD business with a video streaming service that became phenomenally successful. But even Netflix has run into a wall of trouble as programming costs have risen and subscriber growth has slowed. Amazon.com Inc. (NASDAQ: AMZN) has become a powerful rival with its Amazon Prime Instant Video service. The product is tethered to Amazon’s free shipping and e-book subscription products. By dint of its size and number of customers, Amazon has a substantial edge. And Apple Inc. (NASDAQ: AAPL) stalks the sector with its Apple TV product. Even the world’s largest retailer, Walmart, (NYSE: WMT) has a streaming product called VUDU, which it offers through its widely trafficked website.
The consumer can hardly tell the difference between a video streaming service and video-on-demand over cable or satellite. While Redbox may hope the consumer can discriminate among the many offerings, he often cannot. That takes away any advantage its product with Verizon might have. Existing Redbox customers may become subscribers to the new service — if they do not already have subscriptions to the others that are available.
The Redbox joint venture with Verizon does not stand a chance. The industry is already crawling with solid competition.
Douglas A. McIntyre
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