Blockbuster deal paves way for video delivery via Internet

By
Michael Liedtke, AP Technology Writer
January 15, 2009, 1:33 AM ET
3 min read

SAN FRANCISCO -- Blockbuster is stamping its brand on CinemaNow's system for delivering movies over the Internet, providing the video rental chain with another avenue for reaching consumers who want to rent and buy movies without traveling to a store.

The alliance with CinemaNow, to be announced Wednesday, accelerates Blockbuster's push to catch up with rival Netflix Inc., which has diversified beyond its DVD-by-mail service by piping more than 12,000 movies and TV shows over high-speed Internet connections.

Dallas-based Blockbuster took its first step toward matching Netflix in late November when it introduced a gadget, made by 2Wire Inc., that connects to television sets and temporarily saves video after it's downloaded over high-speed Internet connections. Netflix already had been marketing a similar box made by Roku Inc.

"We put our toe in the water and now this gives us a significant leap forward in our consumer offerings" for digital delivery, Blockbuster Chairman Jim Keyes said in an interview.

The partnership comes just two months after digital video and audio specialist Sonic Solutions acquired CinemaNow for $3 million from a group of investors that included movie studio Lionsgate and Internet gear maker Cisco Systems Inc. Novato-based Sonic will still oversee the technology powering CinemaNow's re-branded system.

CinemaNow has been around for the past decade, but never gained the name recognition of Blockbuster — still the largest U.S. video chain even though it has been losing money for years.

By putting Blockbuster's name on CinemaNow's technology platform, Keyes believes consumers will become more interested in the service, encouraging consumer electronics manufacturers to design devices that will make it easier to connect the service to televisions.

Netflix has been pursuing a similar strategy the past year. The Los Gatos-based company's Internet streaming service, called "Watch Instantly," already is compatible with Blu-ray players, Microsoft Corp.'s video game console, the xBox 360, and will soon have built-in access to some flat-screen TVs.

Blockbuster is hoping to further distinguish its digital delivery service by focusing on latest releases available on DVDs. In contrast, Netflix's streaming service mostly serves up video that has been out on DVDs for years or movies that never had much drawing power.

For now, Blockbuster intends to rent digital video on a pay-per-view basis or sell the movies to own. Keyes, though, said the company hopes to develop a subscription plan for consumers who want unlimited access to Blockbuster's digital library.

Netflix provides its streaming service at no additional charge to any customer who pays at least $8.99 per month for the one of the company's DVD-by-mail plans. Most of Netflix's roughly 9 million subscribers meet that criterion.