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Summary:

Redbox is still dragging its feet on streaming, telling analysts yesterday that it was still picking a partner for a subscription service that will be launched later this year. But it has its work cut out for it if it plans to compete against Netflix.

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Investors and users are waiting patiently for Redbox to unveil plans for a streaming service that could compete against Netflix. During its analyst day meeting Wednesday, Redbox finally gave an update on those plans, and the update was: Keep waiting.

The expectation that Redbox would launch a streaming offering began nearly a year ago when the kiosk rental company began surveying customers to see if they would be interested in watching movies online. A few months later, reports began surfacing that Redbox would announce its streaming plans during Coinstar’s third-quarter conference call in October. But those plans never materialized; instead Redbox told investors it was evaluating a number of partners that it could go to market with.

Months have passed, and Redbox is still deciding on a partner for its streaming offering. While it has confirmed it plans to introduce a subscription service that would go head-to-head with Netflix sometime later this year, details are as scarce as ever.

In the meantime, Netflix has grown pretty aggressively during the past year. The subscription video provider ended 2010 with more than 20 million subscribers, which is up 63 percent over the last year. There’s also some evidence that Netflix’s aggressive streaming growth could be eating into Redbox’s kiosk rentals. As more people subscribe to Netflix and are able to access its streaming service across an ever-wider range of connected devices, there’s less reason for those consumers to turn to Redbox kiosks for $1 DVD rentals. Living room convenience, in this case, might be trumping Redbox’s value proposition.

Of course, Redbox doesn’t see things that way. The company blamed its weaker-than-expected fourth-quarter results on a 28-day window with certain studios limiting the number of DVD titles that were available during the holidays. It also said its mix of Blu-ray titles — which didn’t take off as well as it had hoped — and games cut into the available number of DVD discs for rental, something it’s looking to correct.

Redbox also seemed to be in no rush to launch its streaming service, saying it was still early days and the addressable market was incredibly small. Redbox president Mitch Lowe said during his presentation:

“Four or five years from now, half of the households in the U.S. will have the device, have the broadband, have it turned on and have the ability to get these movies. However, when you look at — when you look at the consumption models and you track those going forward and you put — you apply that as a percentage of the overall movie rental business, it reaches about 28 percent of the business in 2015, so still a small fraction.”

Even so, while Redbox said it has more than 31 million users renting from its kiosks during the fourth quarter, it will still have a long way to go to convert those users to a streaming subscription service. Of Netflix’s 20 million subscribers, about two-thirds are now users of its streaming service, a number that has rapidly increased as it has added devices that can access the service.

Redbox also faces increasing competition; Hulu launched its own subscription service, Hulu Plus, last year. And Amazon is reportedly working on a streaming offering that could make more than 5,000 streaming titles available as part of its Amazon Prime subscription. Unless it launches with a compelling price point soon, Redbox’s streaming ambitions could be undercut by Netflix adoption and increasing competition in the video subscription space.

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  1. I’m personally looking forward to signing up if the price is right (rumored to be $4.99). I cancelled Netflix after there latest price increase. Most DVDs would go unwatched and I wasn’t using the streaming very often. I get most of my entertainment needs through my Windows Media Center DVR.

    If Netflix priced their streaming only plan at $5.99 I probably would’ve kept my subscription. But at $7.99 I think it’s over priced especially If you compare what they spend to purchase rights and deliver the streams. To what they spend to purchase DVDs and deliver them to peoples homes.

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  2. Yes. Probably too little, too late, unless RedBox gets Amazon or some other big partner. Even then, they’ll have to offer more than just the videos that are available through NetFlix and every other service, including the pirate torrent sites. They’ll have to offer some kind of value-added service. Some smaller video and music services are betting that superior interactivity will make up for smaller content libraries. My employer, http://www.fargotube.com, is built on a social network so it lets users interact with the bands and filmmakers while buying their videos and music.

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