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Blockbuster Upping Electronic Distribution

9 Jan, 2008 By: Erik Gruenwedel

Blockbuster Inc. is considering offering movie rentals to a Flash memory stick for playback in portable devices.

The Dallas-based No. 1 DVD rental company is working on distributing rentals via the MicroSD chip in which content is downloaded (“sideloaded”) and played on a cell phone, PC or television.

Content would likely be downloaded from recent acquisition electronic service Movielink.

“It is a possibility,” said CEO Jim Keyes.

Speaking Jan. 9 at an investor conference in Scottsdale, Ariz., Keyes said CES underscored to him the belief that entertainment and portability are no longer fiction.

He said the evolution of delivering content to portable devices represented a challenge to all facets of entertainment.

“The studios, distribution companies and retailers are all struggling with so much change so quickly,” Keyes said. “I hope the studios see this as [an] … opportunity to increase consumption of entertainment.”

The executive also said it appeared likely Blockbuster will meet its first-quarter debt covenants.

Keyes, a former chief executive with 7-Eleven, eyes electronic distribution as a venue to elevate Blockbuster beyond what he believes is a narrow DVD rental niche.

He was asked whether the online movie rental market had reached maturity. Keyes said he wasn't ready to characterize by-mail rental that way yet.

“We do think the [online DVD rental] business has slowed,” Keyes said, adding that he felt the rental market had been relatively flat and stable for several years.

He said online DVD rental had stood up well against competition from VOD, streaming and electronic sellthrough.

While Redbox reportedly aims to operate more U.S. kiosks by the end of the year than Blockbuster has stores, Keyes said he has been hesitant to pursue kiosks more aggressively while determining whether downloading or kiosks represent the next phase.

“We don't want to be too aggressive with vending if it has an earlier maturity curve compared to the download,” he said. “It is basically vending — a very sophisticated Coke machine.”

Finally, the CEO said the company had failed to properly communicate to consumers recently implemented external and in-store pricing plans. He said he was disappointed by the execution of new plans that raised the most popular three-out plan by $2 and capped the number of free in-store rentals to the most expensive plan.

“Our in-store pricing is horrifically complicated,” he said. “I'm not sure myself what the price is for various DVDs and what the terms are. The challenge is simplicity.”

Ultimately, Keyes said he wants customers to see Blockbuster as more than a DVD rental store. At the same time, he told investors he wants to “chase profitable growth, not just revenue growth through a new distribution channels.”

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