CSTR: Mixed Street Views on Significance of Verizon Deal

Shares of Coinstar (CSTR) are up 54 cents, or 1%, at $50.19 after the company this morning announced that its “Redbox” DVD rental kiosk business teamed up with Verizon Communications (VZ) on a joint venture to offer both physical DVD rentals and subscription streaming downloads of video, with titles to be announced in the second half of this year. Verizon will have 65% ownership of the joint venture.

Coinstar is also reporting Q4 results later today, after the bell.

Netflix (NFLX) shares fell initially but are now up $1.77, or 1.4%, at $128.23. Verizon shares are up 12 cents at $37.96.

Morgan Keegan’s Justin Patterson writes that it’s “premature to call the Verizon-Redbox joint venture a thesis changing event as there are still significant questions (e.g., pricing, content, supported devices, etc.) that gives us pause.”

Pricing for the service will be key. Netflix, and content site�Hulu, both have “broad content libraries” and are developing original programming.

Patterson rates both Netflix and Coinstar Market Perform.

Piper Jaffray’s Michael Olson reiterated an Overweight rating on Coinstar shares, writing that the news is “positive for Coinstar and, albeit later than expected, consistent with previous chatter surrounding Redbox’s plans to add exposure to digital.”

Olson thinks the combined DVD and streaming offers could in some ways approach what Netflix had last year before it began monkeying with its product pricing.

Olson doesn’t expect the service to deliver material revenue this year.

Coinstar may split the offering between library titles on the streaming side and new releases via kiosk, he speculates:

It remains to be seen how much the service will cost, and how disc rentals will be included, as well as how complete the library of online content will be, which will largely depend on how big a capital investment both Verizon and Coinstar are willing to make. Our expectation is that the online catalog of titles will be primarily library content, with no new releases. This would effectively offer the subscriber an ability to combine new release rentals (kiosk) with a deep library of long-tail content (online).

And Sanford Bernstein’s Craig Moffett, who follows Verizon, and who rates the stock Underperform, writes today that the deal is another piece of Verizon’s plan to be more and more a marketing company offering lots of different wares:

The joint venture announced today by Verizon and Coinstar may or may not pose a competitive threat to Netflix and Dish Network’s Blockbuster. �But it almost surely is�not the basis of a so-called “virtual MSO,” as some this morning have suggested. �The combination of Verizon’s huge customer list and Coinstar’s content and distribution ubiquity is perhaps better viewed as another step in the transformation of Verizon into a marketing machine, a la its joint venture with the cable industry.