4 Reasons Netflix Didn't Crash Today


It was easy to figure that Netflix shares would be put through the meat grinder today. Coinstar and Verizon announced that their Redbox Instant by Verizon digital service w[ill roll out in beta later this month, setting the stage for a commercial launch early next year.

Redbox confirmed the rumored pricing of $8 a month for unlimited streams that also includes four nightly Redbox credits. It also announced that EPIX, a movie distributor of recent releases including Mission Impossible: Ghost Protocol and The Hunger Games, is on board.

Redbox is the only company growing DVD rentals these days. Netflix has seen its base of DVD renters shrink by 38% over the past year to a mere 8.6 million. If Redbox is now rolling out a streaming smorgasbord, shouldn't Netflix be worried? Netflix has more than three times as many streaming customers as it has disc-based renters. If Redbox does to Netflix in digital what it achieved in optical discs, Netflix is in big trouble.

Why did Netflix shares still close sharply higher? Well, there are a few good reasons. Let's dive right in.

1. There wasn't a lot of that we didn't know already.
The details in the press release were already out in the wild. A Piper Jaffray analyst had seen screenshots detailing EPIX availability, the Netflix-esque $8 price point, and even a Dec. 17 launch date.

A Verizon executive revealed last week that a commercial launch wouldn't be ready until early next year.

Getting a beta rollout of a service that may be too little, too late isn't going to rock Netflix's boat.

2. EPIX isn't enough of a differentiator.
There's certainly nothing wrong with EPIX. It's a major "get" for Redbox Instant. The problem is that Redbox Instant is the third subscription service to get EPIX's collection of recent theatrical releases.

Netflix had exclusivity for a couple of years, but then Amazon.com landed EPIX movies earlier this year.

Why didn't Coinstar and Verizon announce more licensing deals for the digital vault than the one company we all knew about? Netflix has lucrative exclusivity on some of its content and original programming to boot. Amazon.com has EPIX and a lot more. If there's content that distinguishes Redbox Instant from the pack, we have yet to see it.

If this is it, Redbox Instant doesn't stand a chance.

3. Amazon already has premium on-demand streaming access to new releases.
The one advantage Redbox Instant has over Netflix is that subscribers can buy premium on-demand rentals of new releases. Netflix has surprisingly resisted the urge to pad its coffers that way.

Well, Amazon has premium on-demand rentals -- and Amazon Prime itself is slightly cheaper than Redbox Instant. It's neat to have access to newer releases, but it hasn't been much of needle mover at Amazon. Sandvine -- a provider of network policy control solutions -- recently reported that Netflix was serving up 18 times as much content as Amazon.com.

4. Redbox Instant may wean off DVD renters
The only thing Redbox Instant has going for it is that if offers four nightly DVD credits. These aren't four DVD rentals. If you rent a movie at a Redbox kiosk and you can't return it to the Redbox kiosk until four days later, that's your entire month's allotment right there.

The more folks stream, the less they rely on DVDs, and that's somethingCoinstar will discover if its digital service is a hit.

Netflix didn't do anything to shake off 38% of its DVD renters. In fact, it lowered the price of its DVD-based plans by $2 when it separated streaming from DVDs. However, when it came time to choose, customers are deciding that a buffet of movies and TV shows is better than waiting for a DVD.

It may seem to be a strange suggestion now. Redbox revenue climbed 18% in its latest quarter. However, as more film buffs realize that streaming from home is more convenient than making round trips to a disc-spewing vending machine, don't be surprised if kiosk revenue peaks.

So why did Netflix close more than 5% higher on the news? As you can see, unless Redbox Instant has something magical up its sleeve -- say Verizon Wireless offers the streams to smartphone customers off the data clock, for example -- the only thing that Redbox Instant will destroy is Redbox itself.

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The article 4 Reasons Netflix Didn't Crash Today originally appeared on Fool.com.

Longtime Fool contributor Rick Aristotle Munarriz owns shares of Netflix. The Motley Fool owns shares of Amazon.com and Netflix. Motley Fool newsletter services recommend Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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