Thursday, August 9, 2007

Blockbuster movie distribution deal

Blockbuster has decided to buy Movielink, a struggling digital movie download site. The site was launched by the big movie studios who have been paranoid about IP issues even since their audio cousins got Napster’d. (Of course it’s not paranoia if everyone really is hoping to steal your stuff).

I’m not sure why the movie studios are buying. Perhaps they feel the need to be an honest broker to iTunes, Amazon and other alternative digital distribution channels. But my hunch (based on no data) is that they had trouble actually agreeing on how to run a business, and thus never were able to make the decisions necessary to make the company competitive.

The price wasn’t disclosed, nor was the financial performance of Movielink. Rick Aristotle (a Netflix shareholder on Motley Fool) thinks that it went very very cheap. I suspect it will be significant enough to be mentioned in the Blockbuster 10-K next March.

It’s pretty obvious why Blockbuster is buying. (So trivial that it’s not even worth leaving to the reader as an exercise). There is one physical video rental store, Blockbuster, competing against one mail-order video store (Netflix) with both a bricks-and-postal solution. In an earlier media distribution battle, there were two major physical bookstores — one got serious about having an online presence (Barnes & Noble) and one did not (Borders); both are losing business to Amazon.

So if driving to the corner video store becomes passé, and waiting for the USPS to deliver envelopes becomes passé, then Blockbuster needs to have a stake in other ways of delivering video content. (Netflix has been rumored to be planning a digital download for more than a year).

Of course, if paying for movies becomes passé, then both Blockbuster and Hollywood lose. So perhaps Hollywood wants someone to make a credible go of selling movies, just as Apple has done with music. But unlike with the iTunes Store, it helps Hollywood to have multiple online channels. (Class: which of the 5 forces is this?)

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