Blockbuster to buy Movielink

Though Blockbuster has flip-flopped on the idea of digital downloads in the past, it has now reportedly entered the market with a confirmed deal to acquire Movielink.

The AP reports that Blockbuster has finalized a deal to purchase the online video download site. At first, the rental chain will keep Movielink separate and run it as a standalone operation, but will eventually integrate it as part of Blockbuster Online.

Early this year, speculation of an acquisition rose when Blockbuster began preliminary talks with Movielink. Plans fell through, though, until Blockbuster named a new CEO a couple months ago, who expressed a greater interest in a stake of the online video market.

Blockbuster, which still has a logo in the shape of a VHS tape, went through enormous struggles with the transition to DVD and cheaper online alternatives. At one point it changed its nationwide rental policies three times in less than one year.

Blockbuster's main competitor is Netflix, an online rental service that began offering digital downloads earlier this year. However, the leader in the on-demand video market is the Xbox 360, which has a vast selection of movies and TV shows available on a "rental download" basis, where users have 24 hours to watch a purchased piece of content. It also offers more high definition video than any other digital download service.

Movielink is laced with DRM security, so much so that it has been widely panned by consumers and has failed to gain any more than a modicum of success. Its prices are also not competitive with services offered by iTunes and the Xbox 360, leaving consumers to pay more money for content that's more restricted. The online video site is owned by a conglomerate of movie studios who created it in 2002 as a legal outlet to combat illegal video sharing.

By 2006, however, there were significantly more sources offering video downloads legally, and movie studios became much more interested in digital downloads operated by third parties. In May 2006, Business Week reported that the five studios who invested in Movielink (MGM, Paramount, Sony, Universal, and Warner Bros) were looking to sell the site. Blockbuster was the first to officially announce an interest in purchasing it.

Blockbuster will pay for the acquisition in cash, but exact financial terms were not disclosed.