Analysis: Blockbuster, CinemaNow, Devices and Desires

Authored by Paul Sweeting on April 15, 2008 - 6:49am.

It's probably not enough to rescue Blockbuster's share price from the shellacking it's taken since announcing its unsolicited bid for Circuit City, but you can hear an echo of Blockbuster's logic in the deal being announced today between online movie service CinemaNow and Technicolor's Electronic Distribution Services unit. Under the deal, Technicolor will provide the "digital supply chain" for CinemaNow's strategy of embedding its virtual storefront on consumer electronics devices.

According to CinemaNow president/COO David Cook, the company is "very bullish" on the comes-with-content model for consumer electronics devices. The company already has deals in place to embed its digital movie store in portable media players from Samsung and Archos, in set-top boxes from DISH Network and in a range of products from HP. More such deals are on the way, according to Cook.

CinemaNow is also working with Sonic Solutions to embed a digital movie store in Qflix-enabled DVD drives for in-home burning of downloaded movies.

The next big battle for market share among consumer-facing movie providers, in Cook's view, will be the race to embed themselves in as many devices as possible. The deal with Technicolor, Cook believes, will give CinemaNow a significant competitive advantage by allowing it to leverage Technicolor's soup-to-nuts digital supply chain to support multiple codecs, multiple DRMs, multiple language tracks and other specifications demanded by device makers.

"Device makers are very keen to have a single embedded solution that will work across multiple SKUs and in multiple [global] markets," Cook told Media Wonk. "Technicolor will allow us to support that."

While side-stepping specific comment on Blockbuster's proposed acquisition of Circuit City, Cook acknowledged that retail will have a critical role to play in the embedded-content strategy.

"These new types of devices will obviously need retail support," Cook said. "We've found that having strong relationships with retail is really critical to making the [comes-with-content] strategy work. Retail is a very important constituency in this."

Blockbuster management so far has not done a very good job articulating a rationale for the Circuit City bid, perhaps, as some have suggested, because the impetus for the deal is coming from dissident shareholders at both companies rather than management.

The Wall Street Journal is reporting this morning that the offer has the "strong backing" of Carl Icahn, Blockbuster's largest shareholder who last year forced out former-CEO John Antioco, and Mark Wattles, the one-time founder of Hollywood Entertainment who is now using his 6.5% stake in Circuit City to launch a proxy fight against management.

Be that as it may, the deal is not wholly without logic. The future of consumer electronics devices lies in network connectivity and embedded entertainment services. Blockbuster, with its huge existing retail footprint, is going to remain anchored in the world of bricks and mortar regardless of how the movie business evolves, but won't survive for long as a single-format specialist. It needs a multi-format, brick-and-mortar play.

Whether this particular combination of brick-and-mortar chains represents the best option for the other shareholders Media Wonk isn't qualified to say. But it gets the basic trend right.

Paul Sweeting

Paul Sweeting is the Editor of Content Agenda, a business-to-business brand dedicated to the nexus of content, technology and business. This piece was originally published on Paul's blog "Media Wonk" on Content Agenda and is posted on DMW with the author's permission.

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