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Attracting eyeballs and ad dollars could prove challenging for Redbox.

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Redbox quietly launches ad-supported video service

Cord-cutting is driving a rush toward free video, but experts caution not to expect Netflix-size results.

DVD kiosk company Redbox is launching an ad-supported online video service. The company has been testing the service on its website and in its mobile app with a subset of its audience, a spokesperson confirmed to Protocol, adding that it would roll it out to additional devices and users "in the coming days and weeks."

"The offering complements our new-release kiosk and on-demand offering with ad-supported catalog content, driving new entertainment occasions, while also providing new ways for Redbox to promote the brand outside of our network," the spokesperson said.

The free streaming service isn't Redbox's first foray into online video. The company has been looking for ways to stay relevant in a world that's increasingly moving beyond physical media. However, the launch comes amid an industry-wide rush toward ad-supported services. With growing competition from the likes of Amazon, Roku, Pluto and others, attracting eyeballs and ad dollars could prove challenging for Redbox — which in turn raises questions about the potential market size for free, ad-supported video.

What Redbox's new service looks like

Redbox has been testing the new service under "Free Live TV" branding. In its current iteration, the video service offers a TV-like experience that was first popularized by Pluto, allowing users to watch preprogrammed channels from publishers like USA Today, TMZ, Now This and Filmrise. Eventually, the company may also add free on-demand movies to its catalog, according to a source familiar with its plans.

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Free Live TV is available to some users right now. A landing page says that the service is "Only available to a select audience at this time. Rolling out soon nationwide."

The new ad-supported service is said to have been about a year in the making, according to another source briefed on the project. It is powered in part by Xumo, a startup that also runs its own video service, and provides infrastructure and content to a number of other companies in the space. In addition to a number of publisher-branded channels, Redbox's service also includes a Redbox Comedy channel and a few other dedicated Redbox channels.

Redbox launched its first online video venture in partnership with Verizon in early 2013. Dubbed Redbox Instant, that service aimed to directly compete with Netflix by offering consumers a low-price subscription tier that included disc rentals. After failing to gain traction, both companies pulled the plug on that service in late 2014.

Redbox went on to launch a transactional video service at the end of 2017, as well as a subsidiary called Redbox Entertainment to acquire and produce content late last year. However, most of the company's business is tied to its physical disc rentals, with Redbox still operating some 41,000 rental kiosks in grocery stores and other locations. Redbox claims that its kiosks have facilitated more than 6 billion disc rentals to date.

A direct response to cord-cutting

The launch comes after a year of strong momentum for ad-supported video: Viacom acquired Pluto for $340 million in January 2019; Walmart unveiled a slate of original shows for the ad-supported tier of its streaming service in May; Tubi surpassed 20 million monthly active users in June; and media player software Plex launched its own ad-supported video service globally in December.

The move toward ad-supported video is a direct response to cord-cutting, said Lightshed analyst Rich Greenfield. "We are seeing an increasingly rapid collapse of the multichannel bundle," he told Protocol. "Everyone is rushing to where the eyeballs are."

This collapse of these bundles is playing out on multiple fronts: Consumers are increasingly canceling their TV subscriptions and instead stream movies and TV shows online, with traditional operators losing more than 5 million subscribers in 2019. Hollywood giants like Disney, HBO and NBC Universal are all launching their own video subscription businesses. And as their target audiences move from cable TV to streaming services, advertisers are increasingly looking for new outlets for their campaigns.

"The decline in viewership of traditional TV means that as much as 25% of annual total ad impressions are no longer available," said former Amazon studios exec turned VC Matthew Ball. "This has produced enormous pent-up demand for premium video advertising with plausible targeting and meaningful reach that isn't on YouTube."

Hollywood, in turn, has a number of incentives to embrace ad-supported video. As Netflix and Amazon shift their focus to original productions, smaller studios have been evolving their licensing efforts to generate more revenue with this new crop of ad-supported services. And for some of the bigger players, ad-supported video is a welcome revenue stream with fewer competitive risks.

Disney, for instance, recently licensed "Lost" and a number of other ABC catalog shows to IMDB TV, an ad-supported video service operated by Amazon. In the past, Disney may have licensed those shows to Netflix. But with Disney operating its own paid streaming service, the IMDB deal represents a better way to monetize the studio's catalog without empowering a direct competitor.

Don't expect a Netflix

The big question is whether there is really enough demand to support that many ad-supported video services — and whether late-comers like Redbox have enough clout to make their mark. Asked about a possible bubble for ad-supported video, Ball didn't seem too concerned. "It's all driving competitive intensity that is great for value to consumers, even if that means managing a few more apps," he said.

"There will be lots of AVOD services," agreed Greenfield, using the industry shorthand for ad-supported video-on-demand services. However, he cautioned that some in the industry may misjudge the potential for ad-supported video, especially when compared with the size of subscription video services. Netflix, for instance, generated around $20 billion in revenue in 2019 and surpassed 167 million subscribers last quarter.

"I don't think there will be an AVOD service that has this type of scale," Greenfield said.

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