Verizon joins Redbox to compete with Netflix

Raising the stakes in streamed entertainment, phone giant Verizon Communications Inc. will launch a new national streaming service in a joint venture with DVD-rental firm Redbox later this year.

The venture will be a direct competitor to Netflix, which now has more than 20 million subscribers, by offering DVD rentals through 35,000 Redbox kiosks and Internet-streamed entertainment by Verizon.

Verizon will own 65 percent of the venture, and Coinstar Inc., which owns Redbox, will own 35 percent. Verizon previously had been rumored as interested in acquiring Netflix.

Coinstar separately announced Monday that it would purchase NCR Corp.'s self-service DVD kiosk business for $100 million. Coinstar had $1.8 billion in revenue in 2011.

"We are delighted to be partnering with Verizon to offer consumers affordable entertainment in both physical and streaming formats and look forward to launching our service in the second half of the year," Coinstar chief executive officer Paul Davis said in a statement.

The new streaming service will be offered both inside Verizon's traditional phone territories, which include the Philadelphia area, and outside those areas, said Verizon spokesman Lee Gierczynski.

Entertainment streaming could cannibalize sales of Verizon's FiOS TV services inside the 12 states where Verizon offers it, as consumers opt for streaming instead of the traditional pay-TV.

Verizon believes the "main opportunity" for business growth is outside its 12-state franchise areas, Gierczynski said. Even if consumers drop FiOS TV for the new streaming service, they could remain FiOS Internet customers, he said.

Craig Moffett, senior analyst with Sanford C. Bernstein & Co. L.L.C., said he was unsure whether the new venture would pose a threat to Netflix or Dish Network's Blockbuster service, which was launched in 2011.

"The combination of Verizon's huge customer list and Coinstar's content and distribution ubiquity is perhaps better viewed," Moffett said, "as another step in the transformation of Verizon into a marketing machine."

In late 2011, Verizon Wireless announced that it would jointly market bundles of telecommunications services with Comcast Corp. and two other cable companies, Time Warner Cable and Bright House Networks. These marketing agreements were related to Verizon Wireless' agreement to purchase wireless spectrum from the three cable companies for more than $3.6 billion.