Phone company Verizon Communications Inc. will challenge Netflix and start a video streaming service this year with Redbox and its DVD rental kiosks.
Verizon and Coinstar Inc., Redbox's parent, said Monday that the service will be national and available to non-Verizon customers as well. It adds another dimension to Verizon's quest to become a force in U.S. home entertainment, and it looks set to compete to some extent with the cable-TV services it already sells.
Unlike competing services from Amazon.com Inc. and Wal-Mart Stores Inc., the new service will combine Internet delivery of movies with DVDs, the way Netflix does. Dish Network Corp. also offers a similar bundle through its Blockbuster subsidiary.
Getting an extensive library of streaming content to rival Netflix's will be expensive, though. The rising cost for streaming rights is the main reason that Netflix raised its U.S. prices by as much as 60 percent last year in a move that triggered a customer backlash. At the end of 2011, Netflix had video licensing commitments totaling $3.9 billion worldwide over the next several years.
Redbox, whose DVD rental kiosks are located in more than 29,000 stores, has been looking to expand into online streaming for more than a year. Its business so far has revolved around renting DVDs for as little as $1.20 per day.
Verizon has its own cable-TV service, called FiOS, in some areas. Its Verizon Wireless subsidiary has also signed a deal to sell service from Comcast Corp. and other cable TV companies in its stores.
With the Redbox venture, Verizon is breaking ranks with the cable and satellite industry, which makes its own video streaming services available only to people who also subscribe to its traditional TV feeds. They don't want households switching to Internet-only services, which are cheaper. Netflix Inc. charges $8 per month for its video streaming plan, for instance, while the average monthly cable bill is more than $70.
Verizon's own FiOS business is relatively small, with 4.2 million subscribers, making it the seventh-largest provider of TV signals to U.S. homes. Meanwhile, its landline phone business is shrinking, so it needs other avenues for growth. Its wireless arm is growing, but it owns only 55 percent of that venture. (Vodafone Group PLC of Britain owns the rest.)
Netflix, which is based in Los Gatos, California, ended last year with 24.4 million U.S. subscribers. About 8.4 million of those customers pay for Internet streaming and Netflix's DVD-by-mail rental service.
To build its streaming service, Verizon will take advantage of the relationships with Hollywood studios and other content producers it has built through FiOS, said Bob Mudge, president of Verizon's consumer business.
New York-based Verizon Communications will own 65 percent of the unnamed venture, with Bellevue, Washington-based Coinstar owning the rest. Redbox is contributing an initial $14 million to the venture, according to a regulatory filing. It did not say how much Verizon would contribute. The filing indicated the two companies may be called upon to contribute a combined $450 million to the venture — another indication that it will have to pay steep licensing fees.
AP Technology Writer Michael Liedtke in San Francisco contributed to this report.