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Movielink's first Blockbuster

Blockbuster Here's a couple of dueling milestones to ponder. Late yesterday afternoon, Blockbuster announced that it had purchased Movielink, a downloadable movie site co-founded by five Hollywood studios in August 2001. With the acquisition, most Hollywood studios are now out of the business of selling downloadable movies directly to consumers. The exceptions are News Corp.'s 20th Century Fox and NBC Universal, which had their own announcement yesterday: they sold a 10% stake in their new online video venture to Providence Equity Partners for $100 million. That venture will offer the pair's movies and TV shows to online viewers through a limited number of websites, including one that they will own and operate.

Movielink Universal was one of the studios that founded Movielink, although Sony Pictures came up with the idea and developed the technology. The service never took off, mainly because most of its founders viewed it as an experiment rather than a serious distribution platform. (A Forrester Research analyst's pessimistic projections about the market in May suggested that the studios were right in this view.) The catalog grew slowly, and the restrictions placed by the studios in the name of deterring piracy (e.g., the movies couldn't be burned onto conventional DVDs, and couldn't be transported through the typical home network) made the site's terms unpalatable to many consumers.

To their credit, Movielink's backers realized a while back that the site's prospects would be better if it were independently owned. They put it on the market quietly more than two years ago. It proved to be a tough sell, though, and in the end, Blockbuster bought the site for significantly less than the $150 million its founders had pledged to invest in it.

The music companies went through the same process, although at a bit faster pace. Lured by the prospect of controlling every link in the value chain, Sony and Universal launched Pressplay while Warner, BMG and EMI joined with RealNetworks in MusicNet. Eventually, each of the record companies realized that, just as with CDs and LPs, they were better off letting third parties handle the retailing of digital tracks and services. Sony and Universal sold Pressplay to Roxio (which later changed its name to Napster), and the MusicNet founders dealt their asset to a private equity firm.

Meanwhile, News Corp. -- which abandoned plans to offer movies on demand online with Disney in the face of a Justice Department inquiry -- continues its efforts to cut out the middleman by selling downloadable films through its own websites. The joint effort with NBC Universal will do a little of both; it will have its own website, and it will distribute content through such third parties as Microsoft, Yahoo and AOL. It's smart for the companies not to try to confine the content to their own site, assuming that the venture's goal is to maximize advertising revenue. Expanding the number of outlets where people can find the content will only increase the size of the audience.

Readers with long memories (when measured in Internet time) will recall Blockbuster's first effort to deliver movies online: an ill-begotten joint venture with Enron, which (briefly) held itself out as a supplier of high-speed Internet services. The partnership led to trial roll-outs in four cities, but was terminated less than a year after it was announced. For a nice retrospective, read this post.

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Times editorial writer Jon Healey pens opinion pieces about a variety of business issues, and blogs about technologies that are changing the entertainment industry's business model.

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