A Blockbuster deal coming to a PC near you

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July 21, 2000
Web posted at: 11:08 a.m. EDT (1508 GMT)

by Kenneth Li

(IDG) -- Blockbuster (BBI) announced Wednesday that it has struck an exclusive 20-year partnership with Enron (ENE) to deliver "video on demand," the holy grail of broadband services, by early next year.

The deal would enable video-store chains to deliver movies and other services on demand over high-speed Internet lines. These so-called next-generation services would be carried nationwide by Enron's high-speed fiber-optic lines. As part of the plan, Blockbuster has also made deals with a series of DSL providers who would provide the "last-mile connection" from Enron's lines to consumers' TVs and PCs. The DSL providers include the recently formed Verizon, SBC Communications (SBC) and Covad Communications Group (COVD).

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Blockbuster's new broadband division would be called Blockbuster Digital Networks. The company plans to deliver 200 to 300 movies and games over the new framework and hopes to entice its 65 million-customer base to use the new service.

"We can make the consumer proposition work [by not charging] much more than rental market today," says Mark Gilman, president of Blockbuster. The new service, he says, is all about "instant gratification."

This is not Blockbuster's first attempt at broadband. In January, the company struck a deal with digital video-recorder company TiVo (TIVO) , whereby Blockbuster would deliver its top 10 movies directly into TiVo units. TiVo markets a set-top box that can download and store video programming. In May, it also signed a deal with DirecTV to offer pay-per-view movies to subscribers of the satellite service.

The Enron deal, according to executives from both sides, appears to be Blockbuster's strongest move yet in its struggle to stay relevant amid the introduction of so much new technology. Blockbuster Digital Networks will debut later this year and be rolled out to major markets by the second quarter of next year. The company declined to name the locations.

The video-store chain, which is a publicly traded unit of Viacom (VIA.B) , has seen its market value plunge more than 25 percent this year alone. In the past year, it has faced mounting pressure from one-hour delivery companies such as Kozmo.com and Urbanfetch.com, which have far surpassed the offerings of Blockbuster.com by branching out into selling and delivering convenience-store items, books and electronics. Kozmo also is preparing to deliver broadband music and videos over the Internet.

Blockbuster has attempted to counter the delivery-company competition. It mulled over plans to launch a service where customers could order videos over the Net and then pick them up at its 7,200 retail outlets across the country. That, however, never materialized. It also has struck a limited alliance with online grocery company Streamline.com (SLNE) to offer same-day videotape delivery.

For Blockbuster, several key issues need to be resolved before this new service becomes a reality. First, the company will need to obtain rebroadcasting licenses from individual movie studios and media companies in order to offer these types of services. To date, Blockbuster has only one deal with MGM to deliver a portion of its film library to video-on-demand subscribers. Gilman said the company is currently in talks with other studios for additional licenses.

A second, larger problem involves the pessimistic projections about the growth of broadband in the U.S. According to some studies, only about 5 percent of U.S. households currently subscribe to broadband services. This is expected to grow to about 25 percent in the next three years.

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