Verizon, Redbox Team To Take On Netflix

Redbox has DVDs for rent. Verizon has plenty of bandwidth. Put the two companies together and you have a competitor to Netflix, which provides DVD rentals and streaming video on demand.

The two companies are joining forces to form a company that will rent DVDs and stream video, just as Netflix does. Verizon will own 65 percent of the venture while Coinstar, parent of Redbox, will own 35 percent. The announcement came in a conference call Monday by Biob Mudge, president of Verizon consumer and mass business markets.

"Verizon is embracing streaming, a platform that many view as a disruptive force in our industry, as a great opportunity for innovation and leadership," Bob Mudge, president of Verizon consumer and mass business markets, said during the call. "By teaming with Redbox, we deliver the kind of consumer-empowering service that customers expect from companies like ours."

Details under wraps

While putting the announcement out there, Mudge provided little in the way of details, saying the service won't start until mid-2012 and he doesn't want to give competitors any advantage with detailed information.

For example, it's not clear how the venture would be monetized. Redbox currently charges consumers a fee per DVD rented from its network of vending machines at retail locations. Verizon provides video service through Fios, it's fiber optic system.

Netflix charges its members an $8 monthly fee, for either its DVD rentals or its streaming service. Presumably, any joint venture aimed at competing with Netflix would have a similar price structure.

Devil's in the details

While Verizon Fios has access to plentiful video content, it would have to work out separate arrangements with distributors before it could make the programming available on a streaming service. Last year Netflix lost it's contract with Starz Entertainment, which declined to renew its agreement, saying Netflix did not charge consumers enough for the content. The company also supplies content to cable and satellite services, which charge much more than Netflix.

Netflix appears to have recovered much of its mojo after a trouble-plagued second half of 2011. The company announced it was splitting its DVD rental and streaming businesses, in effect raising the price by 60 percent for members who wanted to continue access to both. It also announced it was splitting into two separate companies – one to be called Qwickster – only to walk that back under consumer protest.

As a result, Netflix stock plummeted from $304 a share to $74. The stock is now back to $128.