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Cable Technology Feature Article

March 29, 2010

Blockbuster Launches Movies on Demand on T-Mobile USA Handset

By Gary Kim, Contributing Editor

It’s hard to say whether the move will provide material help, but Blockbuster is providing its movie content “on demand” on T-Mobile (News - Alert) USA HTC “HD2” smartphones, and the firms are expected to make the service available on Android and Windows Mobile devices as well. The HTC HD2 is the first phone to feature Blockbuster’s movie service.

Blockbuster also signed a new agreement with movie studio Warner Bros. allowing Blockbuster to offer the studio’s new releases about a month before its chief competitors, Netflix and Coinstar’s Redbox.

Blockbuster’s latest moves are steps in the right direction, just about anyone might agree. But the company has nearly $1 billion in debt, unprofitable stores and already has said it may have to file for bankruptcy protection if it cannot lower its debt by other means.

Still, Blockbuster can claim a small victory in getting its mobile application to market before Netflix, which one might have assumed Netflix would do first.

The new service allows users to download movies to buy or stream them, similar to Apple’s (News - Alert) iTunes service. Eventually, customers will be able to watch a movie on their phone, and then pick up where they left off on their Blockbuster On Demand enabled TV or Blu-ray player.

Some financial analysts estimate the new service will add about $5 million to Blockbuster’s revenues. You might wonder why a major studio would give Blockbuster such a deal ahead of Netflix, given the relative financial situation at each firm. And the answer, in part, is that Blockbuster still represents an important distribution channel, and also provides higher gross revenue than Redbox does.

Last year, Blockbuster lost $355 million on revenues of $4.1 billion. But that also is one way at looking at the value Blockbuster represents for studios. That $4.1 billion represents billions in revenue for the studios.

If Blockbuster fails, studios will lose a valuable channel, have less leverage over the competing DVD-based distributors that remain in business and also lose some revenue, though ultimately much of the lost rental activity could move to online channels.

The deal reportedly also allows Blockbuster to pay less money up front for its inventory, while Warner Bros. gets a higher percentage of revenues from the rentals.

The “Blockbuster on mobiles” initiative probably will not help Blockbuster materially, in the short term. But it could be vital if it can navigate its current debt problem and survive.

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Kelly McGuire