Redbox's Smart Move: What You Can Learn

The company's movie streaming deal with Verizon is a classic adjacency move that leverages the brand while limiting the risk.
By Karl Stark and Bill Stewart | Feb 9, 2012

Redbox and Verizon announced this week they are teaming up to offer an online movie streaming service that competes directly with Netflix. We think it’s a great strategic investment that will likely reap positive returns. In studying their moves, there’s a lot any business owner can learn from the decision.

Coinstar, Redbox’s parent company, is led by a very savvy management team. In our recent article, Lessons from a Dying Business, we noted that Coinstar is doing the right thing by maximizing the value of Redbox, their DVD kiosk business, while also investing in new innovative kiosk technologies.

The co-investment with Verizon is an adjacency move that, importantly, opens a new front for Redbox. The best way to think about new adjacency opportunities is along various dimensions, such as new customer segments, channels, geographies, product segments, or strategic moves along the value chain. In this case, Coinstar is building a new channel with the same product by taking their kiosk-based movie business and expanding it online. Previously, Coinstar’s strategic investments focused on expanding its product offerings within the existing kiosk distribution channel.

Normally, this would be a risky move, but we think there are a number of reasons why Coinstar has hedged its downside and set itself up for success:

  1. They are partnering with Verizon, which controls the "pipe" into 14 percent of U.S. households through their FIOS cable/Internet service.
  2. They are taking a minority stake in the business–Verizon controls 65 percent of the new venture.
  3. Their initial investment is limited to $14 million, which is a relative drop in the bucket for a $2 billion company.
  4. They are able to leverage their successful Redbox brand, which is positively associated with movie content.
  5. Netflix, the leader in online movie streaming, has stumbled recently in its attempt to split its streaming and DVD businesses and is not likely to make any aggressive countermoves at this point.
  6. As the online movie streaming market evolves, there is an opportunity for a company to build a sustainable competitive advantage by providing a more compelling customer offer. Although Netflix is a formidable "first mover," they can be overtaken. Coinstar is one of a few companies in a strong position to do this.

In sum, Coinstar is positioning itself to "see the next card" before placing a bigger bet in this market. This is the essence of making solid adjacency moves. They will position themselves to invest more once they enter the market, test the waters, and learn how to build a competitive advantage over Netflix.

Send us your comments and questions about Coinstar’s strategic decisions and the strategic adjacency investments you are considering at your own company.  We can be reached at karlandbill@avondalestrategicpartners.com.