Blockbuster in talks to join Paramount, Lionsgate, MGM VOD channel

Analysts against move

By Jennifer Netherby -- Video Business, 4/29/2008

APRIL 29 | Blockbuster is in talks to invest in the premium video-on-demand movie channel being launched by Paramount Pictures, Lionsgate and MGM, according to a report today in the Wall Street Journal.

Blockbuster is negotiating to back the new channel in exchange for exclusive digital rights, the Journal said, quoting sources.

In April, Paramount, Lionsgate and MGM announced plans to launch a new pay-TV channel in fall 2009 when their distribution deals with Showtime expire. The channel would include an online and TV on-demand component and would compete against Showtime, HBO and Starz.

Backers reportedly have been in talks with other potential investors to join the service. A report out Monday from Pali Research predicted Netflix or Google would be the most likely investors, with Blockbuster less likely partly because of its $1 billion Circuit City bid.

Asked about the reports, Blockbuster spokeswoman Karen Raskopf repeated a company statement saying, “We’ve said that we are very busy transforming Blockbuster into a multi-platform provider of media entertainment, and to that end, we’re exploring lots of options, so it’s not surprising there are lots of rumors out there.”

If Blockbuster does sign on, it would be the company’s latest move to reinvent its business in the digital era. The company entered the movie download business last year with its acquisition of Movielink.

At the same time, it has begun overhauling its store business, announcing a hostile bid for Circuit City at the same time that it tests new concept stores in the Dallas area that offer everything from big-screen TV sales to cappuccino bars. On Monday, the chain rolled out videogame software and hardware sales in all of its corporate-owned stores as part of an expansion into the videogame business.

In a research note Tuesday, Pali analyst Stacey Widlitz predicted Blockbuster investors wouldn’t be happy if Blockbuster backs the VOD channel.

“First, the studios involved here are not the top studios, and customers will not exactly be clamoring for their content,” she wrote. “Next, entering subscription VOD in addition to downloads shows a lack of coherent digital strategy for BBI. It seems they want to do a little bit of everything—but will they do anything really right?”

She wrote that the company should focus on its fundamentals rather than big investments that might scare away investors.

“Our best advice to BBI is to stop thinking big and sell investors on their improving fundamentals,” the note said. CEO James “Keyes is an operations guy. He is improving BBI’s operational profitability. He should stick to what he does best.”