NEW YORK ( TheStreet) -- Netflix ( NFLX) now faces a dangerous new foe, say experts, as Coinstar's ( CSTR) Redbox and Verizon ( VZ) join forces to tap the video entertainment market. The Verizon and Redbox joint venture lets consumers across the U.S. watch various content whenever they want on whatever device they choose. There will be more details in the coming months, according to a statement released by the companies.
The partnership combines Redbox's new-release DVD and Blu-ray Disc rentals with a video on-demand streaming and download service from Verizon. Sterne Agee analyst Brad Cook believes this could hurt Netflix, as Verizon has more infrastructure and deeper pockets than the video-rental and streaming company. "I think they could definitely take away market share from Netflix," he said. Cook also sees the Verizon streaming deal as a positive for Coinstar investors, particularly with the DVD rental business is in a secular decline. "There's a lot of cash flow that could come out of this," he explained. "I think it's a great value proposition for the customer. It's too expensive for Coinstar to go at it alone. They have access to new releases, which is beneficial, due to the rights being so expensive. As a Coinstar shareholder, you don't want to see them get into a contest buying streaming rights," said one hedge fund analyst, who declined to be named. The analyst is long shares of Coinstar. According to the 8-K filing, Coinstar has to put up its pro-rata share of the first $450 million of capital contributions to the joint venture. Verizon owns 65% of the joint venture, while Redbox owns the remaining 35%. Coinstar CEO Paul Davis believes the joint venture will allow Coinstar and Verizon to give consumers what they want, whether it be physical or digital content. "This alliance is the result of a deliberate and strategic process to identify a partner who shares our commitment to delivering innovative solutions to consumers. We look forward to rolling out the shared benefits this venture will bring to consumers, retailers, and shareholders," Davis said in the statement.
Rumors first surfaced in early December that the two companies were teaming up. The original rumor was that Verizon planned to offer the service outside of its FiOS television service. Coinstar is set to report earnings after the close of trading on Monday. Analysts polled by Thomson Reuters are expecting earnings of 64 cents per share on $498.05 million in revenue. Coinstar shares dipped lower in Monday trading, after starting the session higher. Shares are off 0.26% to $49.53. Verizon shares are little changed, while Netflix is down 2.89% to $122.77. Interested in more on Coinstar? See TheStreet Ratings' report card for this stock. Check out our new tech blog, Tech Trends. -- Written by Chris Ciaccia in New York
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