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Blockbuster and Sonic Solutions Buddy Up for On Demand Movies

blockbuster on demandMovielink and CinemaNow were among the early entrants to pace digital movie delivery.  Investors ponied up tens of millions to the promise: movies beamed on demand straight to viewers over the Internet.  Movielink and CinemaNow both burned out; ideas ahead of the market opportunity.

Blockbuster and Sonic Solutions stepped in in each case to opportunistically take advantage of the early birds’ failures; each buying up the assets and content libraries for pennies on the dollar.  Blockbuster bought Movielink for $6.6m in 2007.   Sonic Solutions grabbed CinemaNow last month for about half of that.

Now, in a new alliance, Blockbuster and Sonic will pool their resources and strengths in a joint venture positioned to try and carry them both forward into the eventual digital delivery transition.

In the deal announced this week, Blockbuster will lend its brand and the Movielink library. Sonic will deliver CinemaNow’s catalog and technology, along with its own technological prowess.  The joint venture, it appears, will scuttle much of Blockbuster’s prior efforts at building-out a streaming on-demand platform.

Backpedaling from comments made by Blockbuster last summer to the contrary, the new effort will seek ubiquity by chasing consumer electronics partnerships as a form of distribution.

Similar to the approach already in place at Netflix, Blockbuster and Sonic will try to embed their technology in connected TVs, Blu-Ray and standard DVD players, or even, potentially, mobile devices.  The first deals are expected to be announced no later than sometime next quarter. 

Samsung, Sony,  Microsoft, TiVo,  LG and others are all speculated as candidates to participate – though there is some question as to whether the device makers will risk confusing the marketplace by backing multiple platforms (LG and Microsoft are early Netflix partners).  Likewise, some companies may steer clear to avoid the risk of undercutting their own potential distribution on-demand offerings  (like Sony).   

Blockbuster says they’re in talks with multiple manufacturers.  Sonic’s existing relationships, which already provide video on several platforms, may help the effort.

The hope in the companies’ offering seems to be vested partly in an effort go go beyond just easing content delivery but also into making it easily transferable across platforms as well.   In one hypothetical scenario suggested, a consumer might be able to start a movie on their living room’s connected TV and then, finish it on a Blockbuster-enabled DVD player in the bedroom. Registering the different devices to a single Blockbuster account, along with some server-side software configured to manage the transition would make this possible.

Sonic, which makes technology for DVD recording devices, among other things, will be doing the “heavy lifting” on the technology development .  Copyright technology is an essential skill already in the toolbox of their core competencies.

The DRM components are sure to be a factor that figures heavily into the alliance’s developments.  Permission from the movie studios (which are aggressive protectors of their content in court (see RealDVD)), will be essential, and probably, difficult to obtain. In no uncertain terms, DRM will be a gatekeeper.  It will stand between this venture’s opportunity and any chance it has for success.  The movie studios will control the time lines.

Blockbuster was slow to get into the mail-order DVD business. They don’t want to make the same mistakes now.  Even though today the digital delivery marketplace remains an infant business, especially compared to the $7.5 b in rental sales generated in 2008,  digital distribution is poised to be a core part of movie distribution’s future. Sales trends show a shift already beginning: in 2008, according to the Digital Entertainment Group, DVD sales were off 9% to $14.5b, rentals were flat at $7.5b. (Full annual stats available here).

The best thing about the Blockbuster Sonic partnership is that it takes technology development out of Blockbuster’s hands.  It’s not the company’s strength and posed a major weakness to its digital strategy. Sonic can fill in some of those gaps while piggybacking the strength of Blockbuster’s brand.

Now, though this isn’t a Netflix killer or a sure-fire hit, it gives Blockbuster a chance to better shape its future offensively instead of defensively. That’s essential if Blockbuster is to carry its brand through transitions in delivery systems.

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