Commentary

Online Video Gets Boost From Blockbuster Buy

Just last week Blockbuster acquired the MovieLink download service. The reported purchase price was somewhere in the $20 million range, which when all is said and done might be one of the biggest steals of the year.

MovieLink is a service founded 5 years ago by the movie studies that offers consumers downloadable movie rentals and/or purchases. It was the studios' attempt to do what the major airlines did when they launched Orbitz in 2001. Prior to the creation of Orbitz, the airlines watched as Travelocity and Expedia were quickly scaling their business and becoming both a competitor and a vendor. Their solution was to join the fray and they did so successfully with the creation of Orbitz.

Several hotel brands attempted to follow Orbitz' lead and launched Travelweb.com in 2002. Unfortunately, with many millions invested, in both infrastructure and marketing, little traction was ever achieved, the site URL was sold off to Priceline and the venture disbanded. MovieLink has ultimately met a similar fate to Travelweb's rather than following in the steps of Orbitz.

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MovieLink was launched in 2002 and received an estimated $100 million in investment from its ownership group of Warner Bros, MGM, Sony Pictures, Universal Studios and Paramount Pictures. The launch of the business was ahead of its time in 2002, and still is today. Because the service only achieved limited traction it was being starved of the continuous investment it needed, while exhausting the patience of its owners, I believe.

Online movie distribution is an area that I think yields much potential. The future of the movie distribution business will quite possibly involve the release of a film not only in theaters, but on cable, online, via your iPod or your cell phone, all at the same time. The movie distribution system will undoubtedly evolve and change from what it is today. The main factors of this change will be independent studios and billionaires like Mark Cuban who are funding projects with multi-platform launch (think HDNet Movies). All it takes is an independent director to take a chance on distributing a compelling film and putting it on YouTube to have it watched and spread virally by millions across the globe. This will be the ultimate catalyst for change.

While I think it's a matter of when and not if, the when may not be for many years. And whenever that time comes, the impact will be felt across the advertising industry as well. Can you envision the release of a new movie for free over the Internet that features commercial breaks or is sponsored by a sole advertiser much like some TV programs (i.e. "24" on Fox and "The Closer" on TNT)?

I think this is a strong possibility. We are already seeing a grandiose shift in how distribution/content companies from the new Dow Jones/News Corp to Comcast are leveraging their platforms. While a free WSJ.com seems all but certain a year from now, a less certain but not entirely impossible free or highly discounted cable service from Comcast that relies on advertising in lieu of subscription revenue is something that has to be considered.

This is why the MovieLink acquisition is so interesting. Blockbuster has been gaining share and has finally become the competitor to Netflix many thought it should have been years ago. For only $20 million, Blockbuster has now aligned itself even closer with the movie studios, and is in a great position when it comes to distribution and potential commercial sponsorships of movies online.

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