Verizon Communications Inc and Coinstar's Redbox unit have formed a joint venture to provide video services aimed at competing against video rental company Netflix Inc.

Shares of Coinstar rose about 7 percent after news of the venture, which will combine the Redbox DVD rental kiosk business with an Internet video offering from Verizon.

The venture will mark Verizon's first foray into video streaming outside of its network operating region as the telephone company currently only offers Internet video services to customers using its FiOS television service.

Daniel Ernst, analyst at Hudson Square Research, said Verizon and Coinstar would need to invest heavily in content relationships in order to offer a comparable service to Netflix.

The question is, how much are they investing to get a large library of programming? Netflix is spending up to $1 billion a year on content, said Ernst. For me it's doubtful that these two companies will invest to that level.

Verizon did not disclose how many of its FiOS TV programming partners had agreed to make their video content available for its streaming service.

The venture is to be 65 percent owned by Verizon and 35 percent by Redbox. The venture will start offering its first products in the second half of 2012, the companies said.

The partnership follows a December 6 report from Reuters that Verizon was planning a standalone streaming video service.

Coinstar rents out DVDs at $1 a day and Blu-Ray discs for $1.50 a day from kiosks in locations such as supermarkets.

Shares of Coinstar were up 60 cents, or 1.2 percent, at $50.25 in morning trade on Nasdaq while Verizon edged up 6 cents to $37.90 on the New York Stock Exchange.

(Reporting by Sinead Carew; Editing by Lisa Von Ahn and Mark Porter)

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