How Crucial are Video Streaming, Linear Video for ISPs, Long Term?

Redbox Instant by Verizon, the streaming service Verizon created with Redbox, is shutting down on October 7, 2014. The closure says less about the current or longer term viability of the business, and more about how tough the current business might be. Redbox Instant simply was not able to get traction.

The logic was simple enough: leverage the Redbox base of 30 million customers to create a rival $8 a month streaming service able to compete with Netflix, among others.

For $8 a month, users were able to stream with no limits plus have four nights of rentals from the local Redbox DVD kiosks.

Redbox Instant customers also could rent console games from the kiosks.

But Redbox Instant simply failed to get traction. Some will point to the catalog, noting that Redbox Instant had thousands fewer titles than Netflix, for example. A bigger issue was that most of those titles could be viewed on Amazon Prime or Netflix as well.

And while Netflix and Amazon Prime offered popular TV services as well as movies, Redbox Instant was a movies-only service.

Consider that TV content might account for as much of 66 percent of all Netflix streaming views.

Some might also argue that Redbox Instant was not available on as wide a range of devices as Netflix can reach.

Netflix is available on every major console type--not just Xbox--and most smart TVs and DVD players sold in the recent past. Redbox Instant could not match that level of device ubiquity.

Also, given the drive for content exclusivity and original content, Redbox Instant simply had none.

Still, the fundamental business logic made sense: if Netflix was doing so well, there is a market. What Redbox Instant had to do was establish a value proposition.

That does not mean some other competitor might eventually challenge Netflix, only to note that, for the moment, Netflix is the service that sets the standard.

Verizon likely will simply try another tack. Compared to AT&T, Verizon executives seemingly have become skeptical about the profit margins from offering linear video subscriptions.

Many small and rural U.S. telcos likewise are rethinking their video strategy. The problem is that a small service provider lacking scale will find the video subscription business model quite challenging.

So even if the triple play now is the mainstay of the telco and cable TV provider business, there are growing signs even that could change.

Larger Internet service providers such as Comcast and Verizon likely see a future where high speed access is the core product and linear video might not be offered at all.

The only salient issue is whether to participate in the streaming business, and if, so, how. At least some smaller telcos already are retrenching, moving to a “voice and high speed access only” product model.

Not least of the reasons is that their business models hinge on universal service revenues, and universal service support now is available only to providers who sell high speed access plus voice.