Business / Technology

Coinstar's stock shot up nearly 16 percent late Monday after the Bellevue company said its fourth-quarter profit more than doubled and that it plans to buy a competing DVD-rental business operated by NCR.

The blowout earnings report capped an eventful day that began when Coinstar's Redbox unit announced it's joining with Verizon Communications to deliver both Internet streaming video and physical movie rentals to take on Netflix.

Whether the joint venture succeeds largely depends on how much the service costs and what type of content it offers — details that were not disclosed Monday — so analysts declared it too soon to tell about its chances against Netflix.

What's known is that the service will be launched in the second half of 2012, and it will be available to anyone in the U.S. with an Internet-broadband connection, even if the user is outside the Verizon network.

The purpose is to better position both companies for the digital age. Redbox, which has been promising a digital-delivery strategy for more than a year, is the nation's dominant source for movie DVD rentals, but it does not yet offer customers access to content online, raising investor concerns about its long-term future.

In an earnings call Monday, Coinstar Chief Executive Paul Davis said the partnership will give U.S. consumers "the entertainment they want, how they want it, and when and where."

Shares of Coinstar ended Monday's regular trading session up 91 cents, to close at $50.56. But that was before Coinstar reported fourth-quarter results that blew past Wall Street estimates.

The stock jumped 16.7 percent to $59.02 after-hours, putting it near the top end of a 52-week trading range between $37.43 and $60.71.

Coinstar said it had a fourth-quarter profit of $31.5 million, up from $11.7 million a year ago, while revenue rose 33 percent to $520.5 million.

Redbox, which has 35,000 kiosks nationwide, charges up to $1.20 a day for DVDs and $1.50 a day for Blu-ray discs. In October, it raised the price of a standard DVD by 20 percent from its long-standing rate of a dollar a day.

A typical Redbox machine holds 600 or so DVDs representing up to 200 titles, mostly movies released within the past year. The alliance with Verizon will give Redbox customers access to older movies and TV shows, said Coinstar Chief Financial Officer Scott Di Valerio.

"For the most part, it won't be new-release content on a subscription basis," he said.

The service might include unlimited video streaming and a certain number of DVD rentals, said analyst John Kraft of D.A. Davidson in Lake Oswego, Ore. For example, he said, unlimited streaming could be paired with three disc rentals for a monthly fee of $5.99.

That would put it toe to toe with Netflix's streaming and DVD bundle, which starts at $16 a month, as well as numerous other subscription-based streaming services, including Amazon.com and Hulu. Also, Dish-owned Blockbuster has a similar service to Netflix with video streaming and in-store rentals for $10 a month.

"Clearly, the reason Verizon wants Redbox is for its ubiquitous kiosks," Kraft said. "There are a lot of streaming offerings, so this will differentiate them from all the others."

Conversely, Verizon's large cash pile and pull with major Hollywood studios make it an attractive partner, Kraft said. "As consumers migrate to streaming, Redbox will need to have a foot in the game."

But analyst Daniel Ernst of Hudson Square Research in New York said neither company provided enough details for investors to make much sense of the partnership. He noted Netflix spends about $1 billion a year on licensing rights to stream movies and TV shows.

"The biggest question is going to be how much money will they invest and what kind of content will they get?" Ernst said. "Are they going to offer a me-to service, or are they going to up the ante and spend even more than $1 billion to have more first-run rights?"

Verizon will take a 65 percent stake in the partnership to Coinstar's 35 percent.

New York-based Verizon has 4.2 million customers for its FiOS video service; Los Gatos, Calif.-based Netflix has 24.4 million subscribers.

Netflix sparked a customer backlash last summer when it announced plans to raise prices by about 60 percent. It lost hundreds of thousands of customers, many of whom flocked to Redbox. It has since regained much of that lost ground, adding 600,000 customers last quarter.

In other news Monday, Coinstar said it will buy NCR's entertainment business, including kiosks and DVD inventories, for as much as $100 million. As part of the deal, it will buy products and services from NCR that could generate $25 million in profit for NCR over the next five years.

NCR operates about 10,000 DVD kiosks under the Blockbuster Express name, though that name will not transfer to Redbox, said NCR spokesman Jeff Dudash.

Davis told analysts in Monday's conference call that NCR's kiosks will help Redbox "fill in pockets of places where it has no physical footprint."

What's more, he said, NCR has a "terrific presence" internationally. "It's a great partner for us as we contemplate moving outside the U.S.," he said.

Amy Martinez: 206-464-2923 or amartinez@seattletimes.com. Material from Bloomberg News is included in this report.