Verizon Cuts the Cord on Redbox Instant

by Glenn Hower | Oct. 8, 2014

Last night, Redbox Instant by Verizon ceased operations ending its 19-month OTT experiment, with both Verizon and Redbox parent company Outwall expressing disappointment with subscription numbers. Redbox Instant failed to find an audience, underscoring the notion that OTT video services must differentiate themselves while offering valuable content to be successful.

Verizon went toe-to-toe with established OTT video services Netflix, Hulu Plus, and Amazon Prime, but failed to differentiate the Redbox service effectively, more or less following the fading Blockbuster streaming/disc hybrid model. Netflix was the early pioneer in streaming video, and remains strong today with 36.2 million subscribers. Hulu focuses on television content with a freemium business model, offering additional content and full-season viewing with its Hulu Plus subscription service. Amazon’s library is more restricted than Netflix, but Amazon differentiated its Prime service by combining advantages in its retail operations (e.g., free two-day shipping) with its streaming video service.

While Redbox focused on movies, Netflix drove much of its subscription service through offering television content leading to binge viewing. According to Parks Associates consumer data, half of Netflix subscribers watching television content viewed three or more episodes in one sitting, while one-third watched four episodes or more. Television programming is suited for binge viewing featuring continuous story arcs as opposed to movies, which require franchised content and sagas like Star Wars or Harry Potter to maintain a constant narrative. At the same monthly price, the ability to binge on television programming with Netflix offers greater value than movie-heavy Redbox.

In the end, Verizon and Redbox will cut their losses, carrying a few lessons with them into the future of streaming video services. Foremost is that success in OTT services is trickier than simply offering a streaming service with an established brand. Consumers want a lot of content and a variety of content for a low price, something Redbox Instant was not able to provide. There also appears to be little demand for a hybrid streaming/physical media model, something Netflix figured out, opting to separate its streaming and DVD-by-mail services. Ultimately, Redbox may have carved itself out as an impulse video disc rental service at convenient retail locations, relying on this model for as long as consumers use physical media, while Netflix expands its reach in the streaming video market.

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