Expectations were high that Redbox would announce its strategy for digital delivery on today’s Coinstar (s CSTR) earnings call, and those who believed that the company would lay out its plan must have been disappointed. While the company confirmed that it would go to market with a digital offering in 2011, and said it would do so with a partner, the DVD kiosk company had little to say about the specifics of what such a plan would look like.
Coinstar CEO Paul Davis said that the company spent a good long time debating whether or not to build its own digital offering or to find another company to partner with. But in the end Redbox decided that the partner strategy was the way to go, based on its ability to roll out a digital offering quickly from a technological perspective, as well as a partner’s ability to offer up a wide range of digital content without the DVD kiosk firm having to do a lot of heavy lifting in striking content deals.
While Redbox declined to name which companies it was in discussions with, it did talk about the reasons why it would be an attractive partner for any of those companies. “Consumers have told us that they are hungry for [digital content],” Davis told analysts on the call. Not just that, but Redbox customers are well-positioned to take advantage of a digital offering, with 91 percent of them having broadband connections at home. Finally, Redbox said its strong brand and extensive physical presence would also offer up a opportunity for any potential partners.
That said, it’s not clear whether Redbox would roll out a subscription service to compete against Netflix, (s NFLX) as has been widely rumored, or whether it would pursue a digital VOD strategy to compete against rentals from iTunes (s AAPL) and other digital storefronts. That strategy would primarily depend on whatever partner it chooses and which options are available through such a deal. With that in mind, these are probably the top potential partners for a Redbox digital offering:
Walmart (s WMT) and Redbox have long been partners in the physical DVD world, with the big box retailer playing host to a number of its kiosks around the country. It would only make sense for Walmart to extend that partnership to the digital realm. Wal-mart purchased Vudu earlier this year, and the digital video subsidiary has been mainly quiet ever since. Vudu has distribution on a number of connected consumer electronics devices, and just announced today that it has struck a deal to bring Hollywood movies to the Boxee Box. With Vudu back out of its quiet mode, it wouldn’t be surprising for Walmart to leverage that asset to help out Redbox with a white-label or co-branded offering from Vudu.
Pros: A wide distribution on CE devices, a strong partnership with Redbox already.
Cons: Walmart has struggled with digital offerings in the past.
Ever since Amazon (s AMZN) rolled out its video on demand offering, it has struggled to gain traction in the digital marketplace, mainly playing second fiddle to Apple’s iTunes. Even so, Amazon has managed to snag some consumer electronics deals, landing on TiVo (s TIVO) DVRs, as well as Roku broadband set-top boxes and Google TV devices from Sony (s SNE) and Logitech. (s LOGI) Striking a Redbox partnership would go a long way to expanding its market clout, but it might not give Redbox the flexibility it desires from a distribution point of view.
Pros: Quick, easy access to a library of 40,000 on-demand titles.
Cons: Somewhat limited CE distribution.
Sonic (s SNIC) could be the dark horse in Redbox’s partner hunt; while it doesn’t have the instant name recognition that Walmart or Amazon have, it’s providing behind-the-scenes help to a number of digital storefronts already, including those from Best Buy (s BBY) and Blockbuster. The owner of the RoxioNow video purchase and rental offering already is embedded on a number of CE devices and would be able to turn on a branded Redbox offering pretty quickly. At the same time, a Redbox-branded storefront and content library would be competing directly against similar offerings from other Sonic partners.
Pros: Wide distribution, potential for a quick turnaround on a Redbox-branded storefront.
Cons: Direct competition against other Sonic partners.
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