Verizon’s Over-The-Top Video Ambitions
Earlier this week, Verizon and Coinstar announced the formation of a joint venture that will combine Redbox DVD/Blu-ray rentals with video on-demand streaming and download services from Verizon. There were few details provided about the service which is scheduled to be launched in the second half of 2012. The JV provides Verizon with an opportunity to sell video services outside of its operating territory and possibly create some interesting mobile broadband packaging with its wireless service. It also enables Verizon to leverage its Digital Media Services platform that was announced in 2011. For Redbox, it greatly expands its brand name and potential revenue opportunities. The JV hopes to differentiate itself from other OTT providers through both its physical and digital content. Although the JV is choosing to enter an ever increasingly crowded OTT space, its well known national brands should help it gain market share relatively quickly. But it is its potential to act as a virtual MSO that makes this a service most interesting to watch in the coming months.
The JV is being formed between Redbox and Verizon Ventures IV LLC, with Verizon holding a 65 percent ownership share and Redbox holding a 35 percent ownership share at the outset. According to information from the LLC Operating agreement, the JV was formed “for the primary purpose of developing, launching, marketing and operating a nationwide “over-the-top” video distribution service that provides consumers with access to video programming content, including linear content, delivered via broadband networks to video-enabled viewing devices and offering rental of physical DVDs/Blu-ray from DVD rental.
In addition, there are licensing arrangements under which Redbox will make available to the JV, DVD/Blu-ray rental rights from Redbox kiosks, while Verizon will make available certain rights to video programming content delivered via broadband networks.
According to Verizon, the yet unnamed service will operate under a subscription-based pricing model, but will not give customers the option of choosing between a separate streaming or DVD/Blu-Ray subscription package like Netflix offers today.
Why This Announcement Is Important
For Verizon and Redbox it offers an additional revenue stream. For Verizon, it will be able to market a national on-demand video service. Additionally, it provides opportunities for Verizon to drive additional traffic across it network which will benefit both its wholesale and wireless operations.
From a competitive perspective – the target is most definitely Netflix. But its impact will likely be far greater as the addition of a well known provider of services to the OTT market will put considerable pressure on all Pay-TV operators (Cable MSOs, DTH and IPTV), potentially accelerating the practice of “cord-cutting”. Although it is not expected that the JV will provide linear and live TV at its initial launch; the fact that is could act as a virtual MSO is game-changing to the entire industry.
Like all OTT providers, the JV will be able to take advantage of the increasing speeds of broadband services and the proliferation of internet enable devices (game stations, Blu-ray players, Television, etc.). Additionally, the JV will be able to leverage the 37 million active Redbox subscribers who rented 684 million DVDs at over 35,000 kiosks at 29,000 locations during 2011.
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