Verizon, Coinstar Start Testing Digital Joint Venture

Date : 07/24/2012 @ 11:03AM
Source : Dow Jones News
Stock : Outerwall Inc. (MM) (OUTR)
Quote : 52.0  0.0 (0.00%) @ 2:05AM

Verizon, Coinstar Start Testing Digital Joint Venture

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   By Joan E. Solsman 
 

Coinstar Inc. (CSTR) and Verizon Communications Inc. (VZ) have begun testing their streaming-video project and Tuesday named a Verizon executive with a FiOS-heavy resume as its leader.

Coinstar said the product has started initial tests five months after the companies formed the partnership in February. Expected to launch later this year, it will provide subscribers with instant streaming content to a variety of devices in combination with new-release movie rentals already available at Redbox kiosks.

The companies named Shawn Strickland, a Verizon executive, as the joint venture's chief executive. Strickland most recently was president of Verizon Telecom's New York south/east region, and he has held a number of leadership positions in Verizon's FiOS initiative from its inception, including helping lead product development.

The product, dubbed Redbox Instant by Verizon, is part of a transition for both companies.

For Coinstar, the digital streaming offering is designed to help its growth engine Redbox stay relevant as a mature physical DVD-rental market faces inevitable decline. For Verizon, the deal reinforces its evolution from a phone company to one that offers a wide range of video and tech services. It extends its video offerings beyond the FiOS high-speed data and television service.

The update on the joint venture has yet to address key questions Coinstar investors and analysts have about the project, namely how it can profitably compete with heavily investing rivals like Netflix Inc. (NFLX).

Dougherty & Co. analyst Steve Frankel said in a recent note that the path to profitability for the Redbox/Verizon joint venture remains far from clear and warned that increased focus on the venture's numbers could make the Coinstar's stock valuation look expensive. On the other hand, B. Riley & Co. analyst Eric Wold has said that while initially dilutive, the joint venture could be quickly profitable and will likely be priced competitively to the comparable Netflix product.

Coinstar agreed to make an initial contribution of $14 million to the joint venture and will hold a 35% share.

Shares in Coinstar were up 9 cents at $60.60 in recent trade, while Verizon stock was down 32 cents at $44.03.

Write to Joan E. Solsman at joan.solsman@dowjones.com

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