- The Washington Times - Thursday, November 27, 2008

SAN FRANCISCO

Blockbuster Inc. will start renting movies and television shows through a new gadget that may give consumers another reason to bypass the struggling video chain’s 7,500 stores.

Introduced Tuesday, the system relies on a small box that connects to television sets and stores video after it’s downloaded over high-speed Internet connections.

The player, made by San Jose-based 2Wire Inc., is based on the same concept as storage devices made by Apple Inc. and Vudu Inc. The devices are all meant to provide a bridge between the Internet and TVs.

Netflix Inc., a Blockbuster nemesis, has been trying to make the same leap with a video-streaming service that can be watched on TV sets through a variety of devices, including a $100 box introduced by Roku Inc. six months ago.

Blockbuster’s foray into so-called “on-demand” video also pits the Dallas-based company against instant-gratification services already offered by major cable carriers including Comcast Corp. and Time Warner Inc.

Blockbuster shares gained 3 cents to close Tuesday at 98 cents; Netflix shares fell 58 cents, or 2.6 percent, to $21.63.

Although Blockbuster has closed hundreds of stores in recent years, its expansion into on-demand shouldn’t be interpreted as a condemnation of its brick-and-mortar locations, Chairman James Keyes says.

“We think the stores will remain relevant to consumers for quite some time,” he insists.

Blockbuster previously sold video downloads through Movielink, a service that it bought for $7.7 million last year. The Movielink option, however, was aimed primarily at consumers who don’t mind watching movies on personal computers or portable gadgets with small screens.

With its latest step, Blockbuster is appealing to the larger audience that prefers watching entertainment on big-screen TVS.

To help get its next downloading box into homes, Blockbuster is selling it as part of a $99 package that includes 25 on-demand rentals. After that, Blockbuster will charge at least $1.99 for each downloaded video. The on-demand rentals can be stored for up to 30 days but must be watched within 24 hours of the first viewing.

The pay-per-view pricing differs from Netflix’s “instant watching” service, which gives unlimited access to a library of 12,000 titles to any subscriber paying at least $8.99 per month for a DVD rental plan.

Blockbuster’s on-demand service is starting out with just 2,000 selections, but Mr. Keyes promises the movies will be of more recent vintage than those on Netflix’s instant-watching service.

“We are emphasizing quality over quantity because we think quality is most important for our customers,” he says.

Blockbuster’s on-demand service is starting out with recently released DVD titles such as “Get Smart, “Forgetting Sarah Marshall” and “Sisterhood of the Traveling Pants 2” - none of which is available through Netflix’s instant-watching channel.

Mr. Keyes also says he thinks Blockbuster’s service will provide a better-quality picture because all the video will be stored on the 2Wire box.

Netflix shows, or “streams,” video over high-speed Internet pipes without anything being saved on a piece of hardware. The clarity of a streamed video can vary depending on the speed of the Internet connection being used.

Los Gatos, Calif.-based Netflix has been investing heavily in the instant-watching channel since introducing it in early 2007. The option is getting used by more Netflix subscribers as it has become easier to connect the service to TV sets through the Roku player, DVD players and Xbox 360 video-game consoles made by Microsoft Corp.

Once a dominant force in home entertainment, Blockbuster has been wounded by Netflix’s DVD-by-mail service, which has 8.7 million subscribers, as well as the on-demand options included in cable subscription packages.

Although its losses have been narrowing this year under Mr. Keyes’ leadership, Blockbuster still hasn’t been making money. The company has lost nearly $4.5 billion since 2001, including $14 million through the first nine months of this year.

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