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Best Buy Bows Movie Download Service

18 May, 2010 By: Erik Gruenwedel

Best Buy Co. May 18 formally launched its much-anticipated movie-download service (albeit with a well-known brand), offering new-release titles the same day as DVD and Blu-ray Disc.

The Minneapolis-based No. 1 consumer electronics retailer said CinemaNow (www.cinemanow.com) will be incorporated into a variety of third party devices, including Blu-ray players, high-definition televisions and home theater systems from LG Electronics and in-house brand Insignia, among others.

Movies can be purchased from $13.95, with electronic movie rentals priced from $3.99 and episodic television from $1.99.

“We believe this represents an improvement from Best Buy’s prior plans to launch the service as 'Blue Sky Video by Best Buy,'” said Eric Wold, analyst with Merriman Curhan Ford in New York, in a note.

Best Buy’s foray into movie and TV show downloads represents the largest retail video-on-demand footprint for what the studios believe is a higher-margin business than DVD rentals.

“Best Buy is in a great position to expand the market for on-demand home entertainment,” said Mike Dunn, president of 20th Century Fox Home Entertainment, worldwide.

CinemaNow, of course, is the download service originally acquired by Sonic Solutions, which then sold the name rights to Best Buy through a previously announced strategic partnership.

“This service, which complements our existing suite of digital entertainment brands, will be available to customers in their homes and on-the-go through a broad array of devices and will be brought to life in store with the help of our Blue Shirts and Geek Squad Agents,” said Chris Homeister, SVP of entertainment for Best Buy.

This explains why Novato, Calif.-based Sonic earlier this year rebranded Roxio CinemaNow to RoxioNow. Indeed, the latter now powers Best Buy’s CinemaNow service.

“No other retailer can use the CinemaNow name,” said Ralph Schackart, digital analyst with William Blair & Co. in Chicago. “Other retailers will use RoxioNow brand, if they choose, versus their own store brand.”

Schackart said the announcement is significant considering Best Buy’s market share and the fact it will incorporate CinemaNow into every Web-connected device sold in stores, including computers, mobile phones and gaming consoles.

The analyst said Sonic Solutions has projected an install-base of 3 million CE devices powered by RoxioNow by next month, increasing to 30 million units by June 2011. Schackart estimates the number of RoxioNow-powered CE devices actively downloading content at 4.5%.

“Of the units actively purchasing content, we estimate two [VOD] transactions per month,” he said.

Analyst Wold said RoxioNow revenues (including Best Buy transactions) should increase from $8 million in 2010 to $27 million in 2011. He said that while Best Buy’s CinemaNow will initially offer a-la-carte content, the retailer has hinted at upgrading the service to include monthly subscriptions.

“This is the first instance where [CinemaNow] has been discussed as a potential subscription service and could represent some serious competition for Netflix (both their streaming and by-mail services) … given that CinemaNow has access to digital versions of new releases where Netflix does not at this point,” Wold said.

Netflix shares were down $3.85 per share in mid-morning trading.

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