NEW YORK ? Phone company Verizon Communications Inc. will challenge Netflix and start a video streaming service this year with Redbox and its DVD rental kiosks.
Verizon and Coinstar Inc., Redbox's parent, said Monday that the service will be national and available to non-Verizon customers as well. It adds another dimension to Verizon's quest to become a force in home entertainment, and it looks set to compete to some extent with the cable-TV services it already sells.
Unlike competing services from Amazon.com Inc. and Wal-Mart Stores Inc., the new service will combine Internet delivery of movies with DVDs, the way Netflix does. Dish Network Corp. also offers a similar bundle through its Blockbuster subsidiary.
Getting an extensive library of streaming content to rival Netflix's will be expensive, though. The rising cost for streaming rights is the main reason that Netflix raised its U.S. prices by as much as 60 percent last year in a move that triggered a customer backlash. At the end of 2011, Netflix had video licensing commitments totaling $3.9 billion worldwide over the next several years.
Redbox, whose DVD rental kiosks are located in more than 29,000 stores, has been looking to expand into online streaming for more than a year. Its business so far has revolved around renting DVDs for as little as $1.20 per day.
Verizon has its own cable-TV service, called FiOS, in some areas. Its Verizon Wireless subsidiary has also signed a deal to sell service from Comcast Corp. and other cable TV companies in its stores.
With the Redbox venture, Verizon is breaking ranks with the cable and satellite industry, which makes its own video streaming services available only to people who also subscribe to its traditional TV feeds. They don't want households switching to Internet-only services, which are cheaper. Netflix Inc. charges $8 per month for its video streaming plan, for instance, while the average monthly cable bill is more than $70.
"We've made a conscious decision to innovate and get involved with this market because it's legitimate and growing, and we think the partnership with Redbox gives us huge upside," said Bob Mudge, president of Verizon's consumer business.
Verizon's own FiOS business is relatively small, with 4.2 million subscribers, making it the seventh-largest provider of TV signals to U.S. homes. Meanwhile, its landline phone business is shrinking, so it needs other avenues for growth. Its wireless arm is growing, but it owns only 55 percent of that venture. (Vodafone Group PLC of Britain owns the rest.)
Netflix, which is based in Los Gatos, Calif., ended last year with 24.4 million U.S. subscribers. About 8.4 million of those customers pay for Internet streaming and Netflix's DVD-by-mail rental service.
To build its streaming service, Verizon will take advantage of the relationships with Hollywood studios and other content producers it has built through FiOS, Mudge said.
Verizon and Coinstar didn't reveal prices or other details of their service. It's intended to give subscribers access to DVD and Blu-ray discs as well as streaming movies starting in the second half of the year, they said. Subscribers might visit the site to find that the movie they want isn't available for streaming, but is available at a Redbox kiosk nearby, said Paul Davis, the CEO of Coinstar.
To get people to try the service, Verizon and Redbox may try to undercut Netflix's price. The minimum price for a Netflix plan that includes Internet streaming and DVD-by-mail is $16 per month ? 60 percent higher than the $10 monthly rate before prices went up last September.
New York-based Verizon Communications will own 65 percent of the unnamed venture, with Bellevue, Wash.,-based Coinstar owning the rest. Redbox is contributing an initial $14 million to the venture, according to a regulatory filing. It did not say how much Verizon would contribute. The filing indicated the two companies may be called upon to contribute a combined $450 million to the venture ? another indication that it will have to pay steep licensing fees.
In afternoon trading Monday, Coinstar's stock gained 55 cents, or 1 percent, to $50.20, after initially jumping 6.6 percent on the news. Verizon shares edged up 16 cents to $38. After initially falling on the news, Netflix shares gained $3.78, or 3 percent, to $130.21.
Netflix already has a couple of powerful competitors with video streaming services. Amazon.com provides a library of movies and TV shows to subscribers to its Amazon Prime shipping services. Wal-Mart, the world's biggest retailer, has a streaming service called Vudu. Neither offers DVD rentals.
Netflix, though, isn't devoting much attention to its DVD rental service because it's convinced the discs are destined to become obsolete. Netflix lost 2.8 million DVD subscribers in the final three months of last year alone.
Netflix is hoping to differentiate itself from its rivals with a larger library that is just now starting to include content that hasn't been available anywhere else. The company's streaming library boasts more than 20,000 selections, consisting largely of older movie shows and TV episodes from past seasons. Netflix's first original TV series, an 8-episode drama called "Lilyhammer," debuted Monday. Other original TV series are coming in an attempt to make Netflix more competitive with Time Warner Inc.'s pay-TV channel HBO.
The additional competition in Internet streaming comes as Netflix recovers from the customers losses it absorbed last year following its price increase and a botched plan to spin off its DVD service into a separate website.
Redbox appears to have benefited from Netflix's troubles, picking up some of the customers who have defected from its DVD service. It now claims to be the biggest DVD rental service in the country.
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AP Technology Writer Michael Liedtke in San Francisco contributed to this report.
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