Can Redbox Challenge Netflix Online?
Redbox is a division of Coinstar (NASDAQ:CSTR) that offers movie rentals via DVD kiosks. Redbox recently announced plans to launch an online streaming service in competition with Netflix (NASDAQ:NFLX), which is well established in the streaming video market.
Can Redbox challenge Netflix with its online move? In the short term, probably not. Redbox could theoretically become a serious competitor to Netflix by adding a streaming option to its popular $1 a day DVD rental service. But Redbox lags far behind Netflix in term of its movie library and device penetration. Our analysis follows below.
Netflix: Many subscribers, big library
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Netflix has created a formidable DVD rental franchise in the U.S., with 20 million subscribers paying a monthly fee of about $12 to borrow physical DVDs and download streaming versions of select films and TV shows. We expect Netflix’s total subscriber count to double by the end of the Trefis forecast period, to 40 million.
You can drag the trend-line in the chart below to create your own subscriber growth forecast for Netflix and see how it impacts the company’s estimated share value.
Netflix’s online library includes some 20,000 titles that it acquired over several years of negotiation with content providers. By contrast, Redbox currently maintains about 200 titles in each of its 24,000 DVD dispensers.
Redbox primarily offers newer titles, making the company’s $1 rental charge a great deal for customers. But to succeed in the streaming video market Redbox will need to vastly increase the size of its library. Judging from Netflix’s progress over the past few years, licensing premium video content takes considerable time and effort.
Several analysts have suggested that Redbox could partner with Sonic Solutions, a company that develops and manufactures digital video publishing systems. Sonic offers both streaming technology and a library of 20,000 licensed movie titles. A Sonic partnership could allow Redbox to sidestep lengthy negotiations with movie studios over streaming rights. But this raises another issue…
Device penetration
Sonic’s technology works on far fewer devices than Netflix’s system. Although Sonic’s Roxio service is expanding, Sonic announceed in its last earnings call that Roxio would be available on 3 million devices by June 2010.
By contrast, Netflix’s game console penetration alone allows it to reach about 50 million devices in the US market. Additionally, Roxio’s platform does not support the Mac OS, which further limits its reach.
You can see the complete $85.26 Trefis forecast for Netflix’s stock here.