Is Redbox Instant Launch Stymied by Content Costs? 10 Dec, 2012
By: Erik Gruenwedel, Chris Tribbey Home Media Magazine http://www.homemediamagazine.com/redbox/redbox-instant-launch-stymied-content-costs-29068 When Verizon CEO Lowell McAdam last week indicated the movie rental joint venture dubbed “Redbox Instant by Verizon” might not bow until the second quarter of 2013, scuttlebutt suggested escalating streaming content license costs might be a cause for the delay. Redbox Instant was supposed to launch in the fourth quarter. While McAdam said beta tests indicated positive feedback from employees in the sample group, Netflix’s landmark pay-TV distribution deal with The Walt Disney Co. underscored the reality that acquiring subscription video-on-demand rights to coveted content is going the way of cable sports programming costs — through the roof. Why? Because content is king, whether on the networks, premium TV or SVOD. Without coveted content, SVOD — despite the low monthly cost — will dither as users realize they do get what they pay for, which largely is dated catalog fare. Notably, 31% of Redbox renters also have a Netflix streaming subscription in their households, according to The NPD Group. And 20% of Redbox disc renters also used a pay-TV video-on-demand (VOD) service (from cable, satellite and telco providers) to rent movies in the past three months. As a result, Netflix, which is on the hook for about $2 billion in content spending this year, agreed to pay Disney an estimated $300 million annually for access to its movies and catalog fare during the premium-TV window beginning in 2016. The SVOD pioneer’s aggressive spending for exclusive rights and expansion internationally is no accident. CEO Reed Hastings is employing a strategy (albeit financially risky) that he hopes put content license fees out of reach for most wannabe competitors, according to industry observers. With leaked online beta information indicating Redbox Instant will charge $6 a month for basic streaming and $8 with disc rental options upon launch, the joint venture likely will seek significant additional upfront capital spending on content (and technology) from Coinstar and Verizon until it generates the required subscriber base growth to underwrite license fees. “Netflix raises the bar from a long-term competitive content aspect to all new levels — levels we doubt Verizon and Redbox have the ‘stomach’ to compete with them at cost-wise,” BTIG Research analyst Richard Greenfield wrote in a recent note. Indeed, despite being owned by the No. 1 cable operator and owner of NBC Universal, Comcast’s SVOD service Xfinity Streampix requires users pay an additional $4.95 monthly fee — in addition to their monthly cable bill — to stream latest episodes of “Homeland,” “The Walking Dead” and “Dexter,” among others. Blockbuster @Home mandates a Dish Network satellite TV subscription with streaming content limited to about 3,000 catalog titles. CEOs from Time Warner, Viacom and CBS repeatedly have stated that they would not be party to building third-party SVOD services on the backs of their content. Indeed, CBS only licenses TV shows to SVOD no longer airing on its networks — a strategy it appears to now be changing to include past seasons of current primetime shows. In Redbox parent Coinstar’s Q3 fiscal call, CEO Paul Davis surprised some observers when he said Redbox Instant is structuring content acquisition based on a per-subscriber basis, which would appear polar opposite to the large capital outlays Netflix and Amazon Prime Instant Video are spending securing fresher content. “It's a win-win as we control costs and the studios enjoy the upside as we gain with subscribers,” Davis said last month. Eric Wold, analyst with B. Riley & Co. in Los Angeles, agreed Redbox Instant acquiring content license rights based on subscriber growth could affect the type of content available for streaming. He believes the launch delay is due more to integrating digital and physical businesses into a seamless platform, including, for example, converting subscription disc rentals into normal nightly rentals if kept beyond a 30-day period. “My understanding on the delay is more due to ensuring the platform is robust,” Wold wrote in an email, adding that variable pricing would be a good thing for content holders over the long haul. “I think it will be a good test for the space. If Redbox Instant is going to be a major player, I don't think content owners would want to get shut out or lose out on upside like the original Starz deal with Netflix.” Wedbush Securities analyst Michael Pachter says that regardless of any variable pricing on content, Redbox Instant still will be responsible for a minimum financial guarantee to content holders. “I am certain that the content owners are licensing subject to a minimum guarantee; it is an open question whether Verizon has chosen to assume all of the risk that a minimum guarantee entails, and to bill only on a variable rate to the joint venture,” Pachter wrote in an email. “Everyone pays a minimum guarantee against a variable rate. Netflix has some deals that are only the minimum, but that will change over time, and I’m pretty sure that the new Disney deal is a minimum against a variable (whichever is higher).” _______________________________________________ Please be sure to include a URL to the article. 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