Netflix Faces Rivals in Streaming Video Wars

It has been a tough few months for Netflix (Nasdaq: NFLX) since its failed attempt to split its business in two drew the ire of customers.

Qwikster may be dead, but Netflix still faces an array of challenges. Now news outlets such as TechCrunch are pointing to a rumored collaboration between Verizon Communications Inc. (NYSE: VZ) and Redbox, the video rental company owned by Coinstar (Nasdaq: CSTR), as a potential rival that could trounce Netflix. However, not everyone is drinking that snake oil.

The rumored Verizon-Redbox offering "doesn't exist today," said Dan Rayburn, executive vice president with StreamingMedia.com. "It's not out on the market."

Redbox, which rents movies and video games through 28,000 automated kiosks across the country, did not immediately respond to requests for comment on the rumors. Deidre Hart, a Verizon spokeswoman, wrote in an e-mail, "Verizon talks to a lot of companies. There are no definitive agreements to discuss with anyone at this time."

Rayburn said a collaboration between Redbox and Verizon could make sense. "Verizon already has deals with the TV guys through their other services. Redbox has deals with studios. They would have to work on streaming rights."

With only unconfirmed rumors to go on, little can be assumed about how such a collaboration would take shape. "We don't know what it's going to cost," Rayburn said. "We don't know what the quality will be like. We don't know what the inventory is or what devices it's going to be on."

Meanwhile, Netflix's missteps show the company is out of touch with its customers, he said. Qwikster was supposed to separate Netflix's DVD-by-mail business from the streaming video service. Customers balked at the plan, and Netflix backed down, leaving the old model of combined services intact, though at higher rates.

"There is such disconnect between Netflix and its consumers right now," Rayburn said.

Even without Verizon and Redbox potentially nipping at its heels, Netflix must contend with increasing competition from others, he said. Growing rivals include the Hulu Plus service from Hulu, a joint venture of Comcast (Nasdaq: CMCSA), News Corp. (Nasdaq: NWS), and The Walt Disney Company (NYSE: DIS); Amazon Prime; and Blockbuster, which is owned by Dish Network (Nasdaq: DISH).

"Dish stated that it will come out, sometime in 2012, with a streaming-only subscription offering for those who don't have Dish TV," Rayburn said. He also expects Google (Nasdaq: GOOG) and Apple Inc. (Nasdaq: AAPL) to offer their own streaming video subscription services eventually. Even video game console makers may give streaming video a try. Microsoft Corp. (Nasdaq: MSFT) and Sony (NYSE: SNE) "will end up offering something at some point across Xbox and PS3."

Amazon.com (Nasdaq: AMZN) seems to be gaining ground fast on Netflix and leveraging advantages that may be hard to match, he said. In February, it began letting Amazon Prime subscribers stream movies and television shows. "They are already at 12,000 titles. They have grown their inventory very quickly."

Furthermore, Amazon already sells DVDs, Blu-ray discs, and digital downloads. "Amazon is putting the content in front of the consumer in as many different ways as possible, which the studios love."