Blockbuster To Rent Videos Online

In an attempt to extend its dominance of the video rental market to cyberspace, Blockbuster, Inc. has inked a deal with utility firm Enron to offer videos for rent over the Internet.

Blockbuster, which is a subsidiary of entertainment company Viacom, Inc., said the service could be up and running in test markets by the end of this year. An expansion to additional U.S. cities and overseas is planned for early 2001.

The service will require users to have a digital subscriber line (DSL) Internet connection and to buy or rent a set-top box that will give them access to the movies stored on Enron Broadband Service’s high-speed network. Pricing has yet to be determined, the companies said, but one Blockbuster official indicated that per-video prices will be slightly higher than at the chain’s stores.

VCR Quality, Pause Control

Blockbuster said the service will offer VHS-quality or better pictures, and unlike traditional cable pay-per-view movies, give consumers the ability to stop, rewind and pause movies as they watch them.

Blockbuster CEO John Antioco said the alliance has the upper hand in the battle for supremacy in the entertainment-on-demand market, due to Blockbuster’s widely known brand. The partnership, he added, “should enable each of us to capture a significant share of what will be a multi-billion dollar (US$) annual business.”

Enron CEO Kenneth L. Lay called the video-on-demand service the “killer app” of the online entertainment industry.

20-Year Deal

The two companies signed a 20-year exclusive agreement that will give Blockbuster access to Enron’s Intelligent Network, which will be connected to users’ homes via DSL services. The companies said the on-demand video will be the first of a planned family of entertainment offerings that will include video games and other Internet services.

The deal also involves several telecommunications players, including SBC Communications, Verizon and Qwest, which will offer the DSL service to users. In addition to marketing the service to its 65 million existing customers, Blockbuster will sell the DSL service in its 7,200 stores around the world.

Obstacles Remain

In the long term, the availability of on-demand video online may be a threat to video sales over the Internet. However, at present, only a small fraction of U.S. Internet users have connections fast enough to support streaming video — either through cable or DSL access — and DSL service is available only to telephone customers located near switching stations.

In fact, Forrester Research analyst Maribel Lopez said the lack of high-speed connectivity could stall widespread video-on-demand adoption until 2002 at the earliest.

Given those factors, the move may be largely a defensive one on Blockbuster’s part, designed to preserve the company’s market share in the long term as more video becomes available over an increasingly high-speed Internet.

Suddenly Active Online

Blockbuster’s recent action followed earlier indications from the company that it would make major moves online. In January, Blockbuster said it had reached an agreement with MGM studios to one day make that company’s catalog of 4,100 movies available on the Web.

In March, Blockbuster was one of several companies, along with McDonald’s and TV Guide, to invest in Food.com, an online takeout service. Also, last fall, the company said that it had hooked up with America Online in a bid to beef up its Internet presence.