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Blockbuster, Weinsteins Ink Exclusive Rental Deal

15 Nov, 2006 By: Thomas K. Arnold

Brothers Bob and Harvey Weinstein are back in the video revenue-sharing game. The Weinstein Co. Wednesday announced it is giving Blockbuster exclusive video rental rights for three years to all its theatrical and direct-to-video movies, beginning Jan. 1, 2007.

The studio and the giant video rental chain will share rental revenues, much as the Weinsteins did during their days at the Walt Disney Co., when many of the films they produced through their Miramax Films subsidiary were released directly to video. Blockbuster was a steady client because of a revenue-sharing deal with Disney.

In return for exclusivity, Blockbuster will pay The Weinstein Co. a minimum guarantee. For theatrical pictures this guarantee will be based on box office performance; for direct-to-video titles, the guarantee will be based on acquisition or production costs.

Among the initial films that can only be rented at Blockbuster, at least officially, are Bobby, starring Anthony Hopkins, Demi Moore, Sharon Stone, Elijah Wood and Lindsay Lohan; School for Scoundrels, with Billy Bob Thornton; the Dixie Chicks documentary Shut Up & Sing; and the Scarlett Johansson starrer The Nanny Diaries, based on the best-selling book of the same name.

Bob and Harvey Weinstein said the Blockbuster deal will provide their studio with “increased access to millions of consumers.” Blockbuster president John Antioco said his chain “is always looking for ways to give our customers the products and services they want, and can't find anywhere else, and this agreement will enable us to do just that.”

In a conference call after the deal was announced, Bob Weinstein insisted his films “won't be available through Netflix” or other rental stores. “It's like a theater for us,” he said. “Some theaters get movies, some don't.”

But that may not be the case. Because of the first sale doctrine to U.S. copyright law, rental dealers can still buy Weinstein DVDs from mass merchants and other retail DVD sellers, and then turn around and rent them.

Blockbuster's two biggest rivals for consumer rental dollars in the United States, Movie Gallery and Netflix, weren't commenting, but sources close to one top rental chain said, “We're still going to service our customers with the titles they want. All this amounts to is Blockbuster writing a check to the Weinsteins, just as they did in the days of Miramax and Disney.”

In the conference call, Harvey Weinstein alluded to the prior revenue-sharing deal for his films with Blockbuster when he and his brother ran Miramax Films under the Disney umbrella. By the time the Weinsteins set up their own company in October 2005, that deal had long since fallen apart.

“When we were at Miramax, there was an unfortunate situation that there were revenues lost to us, because there were some disagreements between parent companies (at the time, Blockbuster was part of Viacom),” he said. “John was always such a good guy about all of that, and I thought that it might be time to re-explore that relationship and reinvigorate that relationship.”

In the conference call, Antioco said the deal would yield about 60 films a year. He wouldn't say whether Blockbuster is pursuing other exclusives. “We don't really comment on deals that are in the works,” he said. “Today we're here to talk about this alliance.”

Antioco promised increased marketing and in-store merchandising support. “Previously when we marketed titles, in a lot of cases we were doing it for the entire rental industry,” he said. “Now, we're doing it for Blockbuster and The Weinstein Co.”

Observers aren't surprised that Blockbuster has sought out an exclusive. In the 1990s, the chain launched a subsidiary that produced and acquired direct-to-video films that could only be rented at Blockbuster stores. DEJ Productions was later sold to First Look Studios.

Some see the exclusive agreement with The Weinstein Co., and any others that might be in the works, as a slap in the face to Netflix, which many see as Blockbuster's arch nemesis.

The rise of DVD and sellthrough have been tough enough on Blockbuster, which has seen both its profits and its stock price plummet as more and more consumers switched to buying videos at Wal-Mart, Target, Best Buy and other big nonspecialty retailers.

So when Netflix began siphoning off renters from traditional brick-and-mortar stores through its online subscription plan, Blockbuster recoiled at what it considered an attack from within its core industry. The chain promptly launched an online rental service of its own and began aggressively attacking Netflix on price. Netflix currently as about 5.7 million subscribers, while Blockbuster reported 1.5 million online users as of Sept. 30, with a target of 2 million by year's end.

Earlier this year Netflix filed suit against Blockbuster for patent infringement. Blockbuster last week retooled its Blockbuster Online into Blockbuster Total Access, which allows subscribers to return the movies they get by mail to any of the more than 5,000 Blockbuster stores in the United States. When they do, they get a free movie rental from that store, in addition to the next movie in their queue by mail.

Antioco talked up the new program during the conference call, saying Total Access “gives Blockbuster 100% reach anywhere the U.S. Post Office reaches.”

Bob Weinstein was equally high on the new program, crediting its launch with the decision to give Blockbuster the exclusive. Between physical stores and online, he said, “every customer will be serviced. It's all about the consumer for us. The biggest retail giant in the business is Blockbuster, and now, with Total Access, every customer serviced by a mom-and-pop is serviced by Blockbuster, either through their stores or online. We have 100% penetration. That's why we did the deal.”

When asked whether he and his brother approached Netflix first, Harvey Weinstein said, “They've been talking to us rather consistently. They've been interested in pursuing a deal with us. But] once we knew what Total Access was all about, there was no question of where we wanted to go.”

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