In the back-and-forth struggle between DVD rental titans Netflix (San Jose, CA; www.netflix.com) and Blockbuster (Dallas, TX; www.blockbuster.com), Netflix had recently one-upped its rival by announcing a service for downloading movies and TV shows to a computer. In a bid to match that capability, Blockbuster announced on Wednesday that it is buying one of the leading companies in the download business - Movielink (Santa Monica, CA; www.movielink.com). But the question remains, how will the lackluster download service be harnessed to contribute to Blockbuster’s success.

John DiLoreto
Analyst and Editor for
Insight Media

Originally a brick-and-mortar videocassette rental chain, Blockbuster has grown strong in the DVD era and thrust itself into the online DVD ordering (Netflix turf) last November with its "Total Access." This service smartly leverages its store locations to add another level of service that Netflix cannot. Reports are that the program has allowed Blockbuster to add subscribers at a faster rate than Netflix.

In an appeal to its leading edge customers, Netflix added, "Watch Now" that allows subscribers to start watching one of 4,000 movies or TV shows on their PC Windows PC in as little as 30 seconds. The service has provided 5M viewings in its first six months.

There’s no word on how many downloads Movielink has had in that period for it larger collection of titles, but its clear that the download business model has suffered for lack of convenience, quality and value. With downloads you have to go to your computer, wait before you can begin watching, and then, unless you have your TV connected to your PC, you have to watch it on a small screen. Plus, you have to pay for the privilege.

Netflix has changed that game in several ways. You mostly still have to watch it on a small screen, as with Movielink. But you can both search and stream a movie on the screen. I must admit it is quite tempting. However, unlike Movielink, your Internet connection speed will determine viewing quality instead of download time.

Another difference is that there is no charge for the Netflix streaming service. Movielink charges $2.99 each for most rentals and a lot more to purchase.

Movielink was launched by five studios in 2002 (Sony Pictures Entertainment, Universal Studios, Paramount Pictures, Metro-Goldwyn-Mayer and Warner Bros.) for the first time offering a large catalog of mainstream films for rental online. But Movielink has struggled to grow, even as it allowed the purchase of films and signed licensing agreements with all major studios and a large number of independent film companies.

Blockbuster’s Total Access has about 3.6M subscribers, compared to 6.7M for Netflix. However, Blockbuster added 600K subscribers in the second quarter, while Netflix lost 55K, its first quarterly decline since the service began in 1999. Netflix, the industry pioneer, continues to push forward with services for viewers on TVs and PCs. But it is handicapped with its lack of local stores.

Blockbuster said it would continue to operate Movielink as a stand-alone service, eventually making elements of it available through its Total Access service. But in our view, the key to success in this deal will rest on integrating what Movielink has to offer within the Blockbuster user experience - not operating it as a stand alone unit. The two need to make downloading, or even streaming movies more convenient and higher value than Movielink’s existing business model.

But another winning card for Blockbuster may in its deal with AT&T that allows Homezone subscribers to download Movielink titles directly onto the set-top and watch them on the TV. This service is very much like the Amazon Unbox On TiVo service, which I wrote about in my Display Daily of July 13.

With its purchase of Movielink, Blockbuster has the most pieces to make movie delivery and viewing seamless and ubiquitous. Putting them together will be the big prize for the consumer, as well as the service provider.

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