Competition for Netflix?

Many of us lived through the drama that was the Netflix-Qwikster debacle last year. Since then, however, Netflix has recovered and shot up almost 70% in 2012. It delivered over 2 billion hours of streaming, cleverly began focusing on TV-shows for their addicting factor, and partnered with EyeIO to develop a video encoding system requiring only half the current bandwidth in order to expand into more developing countries. Now it faces a new threat according to news sources. But does it really? Last Monday a $450 million Verizon-Coinstar joint venture was announced that seeks to compete in the online streaming and DVD rental business in the US. For an alleged $6 a month customers will get unlimited streaming and one DVD at a time from Redbox kiosks, which Coinstar operates. Meanwhile, Netflix charges $7.99 for each service and $15.98 for both. While the 62% savings are bound to attract an audience, Verizon/Redbox will more importantly be competing with Netflix, Amazon and other online streaming services in terms of content. With advanced recommendation systems and relatively high switching costs, the breadth and depth of their selections will largely determine whether people jump on board or stick with their current service. Investors are justifiably skeptical. Netflix has 24 million subscribers, spends up to $1 billion a year on content and has video licensing commitments of over $3.9 billion, and even so people are consistently dissatisfied with the limited selection. It seems unlikely that Verizon/Redbox will be able to match this with a ‘mere’ $450 million. For now at least, this is looking more like a box office flop than a blockbuster deal in the making.

-Vivien Sung