About a year ago, around June 2006, Movielink, the Windows only movie download service owned by a consortium of movie studios planted a sign in the yard and put itself up for sale. As hot as Internet video has been, and despite the success of some download services like iTunes, Movielink has sat on the market like a house needing major repairs in a bad real estate market.
Late Wednesday, after months of talk, rumor and innuendo, rental company Blockbuster stepped in to buy the unwanted property. Terms weren’t disclosed but reports have estimated the deal was well below $50m and possibly as low as $20m.
Negotiations between the companies had been going on for months (reports of a sale have leaked incorrectly since March) but arguably, this deal has been in the works for years. As far back as 2005, Movielink, by some reports, was as close as a single vote from selling a majority stake to Blockbuster for about $70m. With two years waiting, and a likely much lower price for an outright purchase, patience seems to have worked in Blockbuster’s favor. (And they got a particularly good bargain relative to the $100m-plus reportedly invested in Movielink since it’s formation in 2001/2002).
When Movielink was formed it was born of a rare partnership between many of the major Hollywood movie studios including Paramount, Sony, Universal, MGM and Warner. The studios joined together in the hopes of being collectively well positioned for the growth of the anticipated download market and also, to try and provide an alternative to pirated content. The site just never really caught on with customers.
For Blockbuster, buying Movielink can largely be considered a defensive move. They are in a fists balled, down and dirty battle with Netflix for dominance the rental market. That battle has been hurting both companies’ finances. And while the battle wages, download services are setting preparations to form another front into the lucrative movie rental business.
Buying Movielink gives Blockbuster an immediate technology footprint from which to expand, and arguably the lead time is more valuable for them than overall development cost. With Netflix developing their own download service, the buy gives Blockbuster assets to try and match moves.
At the same time, purchasing an established download service (regardless of limited customer adoption), will also give Blockbuster a platform to use to try and thwart competition from other ambitious (and in some cases technologically sophisticated) rivals including Apple’s iTunes as well as offerings from Amazon (unBox) and Wal-mart or even Microsoft which sells movie downloads through the Xbox Live environment.
Blockbuster’s strengths lie more in branding and name recognition than technology development. Combining their strengths with an existing platform was probably a smart, and safe move. With the purchase, Blockbuster will gain the rights to show the films of Movielink’s prior studio owners. There are approximately 4,000 films in the present Movielink library.
For customers there will likely be little immediate change. Users will still be able to rent or buy films through Movielink. Rentals will still be storable on their computers for 30 days but once activated must be viewed within 24hrs. Purchases and rentals will remain in Windows Media Format and be unable to be burned to discs for use on normal stand alone DVD players. Viewing Movielink films (for now) will require users to either watch them on their PC’s or hook their television up to their PC’s video-out card for TV-based viewing. That will remain a limiting factor and may be something Blockbuster will look to alter.
“Blockbuster is committed to keeping pace with the changing needs of customers by offering them an expanded array of convenient ways to access entertainment content, CEO Jim Keyes said in a statement. He continued to characterize the acquisition of Movielink as “the next logical step in [the] planned transformation of Blockbuster.”
Hedging their bets, Blockbuster also owns a stake in Movielink competitor Cinema Now. That is unlikely to be divested or change. For the near term there are also no likely plans to change the operational structure of Movielink but the web site will likely be integrated into Blockbuster.com.