So how about it? Will the joint venture between Verizon Communications Inc. (NYSE:VZ) and Coinstar, Inc. (NASDAQ:CSTR) be another death-blow for Netflix, Inc. (NASDAQ:NFLX)? Possibly. But, before you assume the worst for NFLX, it may be worth looking at things from the pro-Netflix side of the table. Three reasonably-compelling realities stand out that might just keep the Verizon/Coinstar project from ever getting a great deal of traction.
1. Netflix has the inside track when it comes to connecting consumers and content. While it wouldn't be accurate to say Netflix's negotiations with studios and distributors for access to content has been favorable, at least NFLX can say "been there, done that, and still have 25 million subscribers to show for it."
Yes, there's a lot to be said for being first, even if you're not the best. Yet - for the time being anyway - Netflix is still the best online video content provider despite the loss of a great deal of its library over the past year. Starz, for instance, simply said "no thanks" to using Netflix as a venue this summer when the two parties couldn't come to an agreement on pricing. Yet, industry analysts suggest Netflix still has two to three times the amount of programming available online compared to its next-nearest competitor, Amazon.com.
And, even though they may be a tad less satisfied now, Netflix still has 25 million subscribers on board, versus none for the new Redbox Instant (as Verizon Communications and Coinstar have decided to call it).
2. Netflix has a powerful brand name. Whether the company is ultimately acquired for it or simply leverages it is yet to be seen, but there's no denying that Netflix is THE brand name in the digital content business; it's almost become synonymous with the industry. Granted, it's become THE name largely because it was first to the market with a viable product (see bullish argument #1), but it is what it is. Coinstar and Verizon are going to have to undo a great deal of brand-name-turned-slang (and your brand name being a slang term can be a potent force - just ask Google or Coke) if it's going to successfully capture mindshare within Netflix's current customer base.
3. Netflix may finally be starting to see the value of (real) partnerhsip. It's unlikely Coinstar could take on Netflix by itself; it doesn't have the reach or the distribution technology, and is light on clout. It's also unlikely Verizon Communications - Verizon Wireless, actually - could take on Netflix by itself; it doesn't have in great inroads with content distributors, and isn't established as a movie-related name. Together, though, the two can use the best of each organization and shake things up for Netflix.
Meanwhile, Netflix has been resistant to the idea of a partnership, and has made a point of making sure it's not acquired. Yes, the company danced with the idea of forging partnerships with cable companies like Time-Warner Cable. A closer look at what Netflix CEO Reed Hastings was offering, however, looked oddly lopsided in favor of Netflix, and unfavorable for cable companies; it was never a proposal any cable operator could seriously consider. Now, however, Netflix seems to recognize that if it wants to grow through partnerships, it's going to have to help those partners grow too (rather than cannibalize them).
As an example, though Netflix competes with Amazon.com on the content front, it now actually utilizes Amazon's cloud storage service to host and deliver its digital video content. Microsoft has also been rumored as a potential Netflix partner, which would be a decent fit, given the software giant's growing effort with consumer electronics (and mobile). And, one has to wonder of the Verizon/Coinstar team are going to force Netflix and AT&T to join forces. If so, that could stop Redbox Instant dead in its tracks.
One thing is clear though... the company isn't looking for a buyer - just a partner.
Bottom line? This is still Neflix's ballgame to lose. That's not to say it can't mishandle things from here. But, just because Coinstar and Verizon have build it doesn't inherently mean they, customers, will come.