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Blockbuster (BBI)
Blockbuster and TiVo Team Up
Dallas-based Blockbuster announced a new partnership with TiVo to deliver Blockbuster's digital movie library over the Internet directly to TiVo digital video recorders. The video rental company is playing catch-up to rival Netflix (NFLX: Charts, News, Offers) which already offers free instant streaming of its movies and TV shows to its customers through TiVo DVRs and other devices such as the Xbox 360. This announcement comes only days after Blockbuster reported a $362.7 million quarterly loss. Will this deal be enough to save the struggling rental giant?
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Mail order rental pioneer Netflix has severely cut into Blockbuster's market share over the past several years, forcing Blockbuster to adapt with an online offering of its own, Blockbuster Total Access. Netflix also offers video streaming through some Blu-ray players from LG and Samsung, Microsoft's (MSFT: Charts, News, Offers) Xbox Live, as well as on the Roku digital video player. Netflix's share price is up nearly 15% in the past year while Blockbuster shares have fallen nearly 78% in the same period. Netflix had its most successful quarter to date in the final three months of 2008.
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Expanding its reach past its brick and mortar stores is a key strategy for Blockbuster, which has seen its DVD-by-mail services and online video viewing rise in popularity while its video rental business declined. The company posted a loss for the fourth quarter, but U.S. same-store sales at locations open at least a year rose by 4%, as sales of products such as video games, DVD players and other devices helped offset weakness in video rentals. This deal is said to be the first of many Blockbuster would announce with major consumer electronics companies. "We are excited to be teaming with TiVo, the company that created the DVR, to make Blockbuster's entertainment content readily available to their millions of subscribers," Jim Keyes, chief executive of Blockbuster, said in a statement. "Ultimately, our vision is to work with TiVo so that their subscribers can access movies not only through our On Demand service but also from our stores and through our by-mail service as well."
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Blockbuster will not be the first movie service on TiVo however it does have one advantage. Blockbuster movies can be rented through TiVo before they've even been released on pay-per-view. Blockbuster claims its roster of movies on TiVo will outshine those of other choices available at Netflix and Amazon. Blockbuster will offer a smaller selection of about 5,000 to 10,000 titles at any one time, mostly newer releases like box office hit "The Dark Knight" that will typically cost $3.99 to watch over a 24-hour period. Blockbuster On Demand will be accessible only to the approximately 800,000 TiVo owners who have broadband Internet connected directly to their TiVo boxes.
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While Blockbuster's moves into the digital space have been rightfully applauded by investors, its Achilles heel remains it operation of thousands of stores that very few customers visit. Recent cost cutting measures have included plans to close some stores, however it will take time for those measure to be in full effect. Luckily for Blockbuster, it will have some time to forge new deals in the digital space and work on restructuring. Last week, it had reached agreements with two of its largest lenders to extend its revolving credit line through September 2010. As of 12:11 pm, Blockbuster shares are up nearly 10%.
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