August 8, 2007 6:50 PM PDT
Blockbuster acquires Movielink
Terms of the deal were not disclosed.
Movielink offers digital movie downloads, but none of the competitors in the sector has managed to find much of an audience.
Founded in 2002, Movielink is backed by Universal Studios, Paramount Pictures, Sony Pictures, Metro-Goldwyn-Mayer, and Warner Bros. Studios.
For Blockbuster, the acquisition comes during one of the company's darkest periods. Competition from cable providers offering video-on-demand and DVD-rental services such as Netflix have cut into profits.
The company's stock price hit $7.30 in March, a 52-week high, but closed trading on Wednesday at $4.23. The stock, which was trading at more than $20 in 2002, was up 8 percent to $4.60 in after-hours trading.
The acquisition does give Blockbuster an increased online presence. Movielink owns the rights to more than 3,000 titles, making it the Web's largest digital-movie library.
Analysts say Movielink has failed to catch on because the digital-rights management schemes it uses to protect copyright material are too rigid. Films from Santa Monica, Calif.-based Movielink can't be burned to discs.
A year ago, the company announced that it was working on a plan that would allow people to copy films to DVD. But now, the only way to watch Movielink films on a TV is to buy a set-top box the company offers or create a network between a PC and TV.
That plan is not very attractive considering that a regular DVD costs about as much as a Movielink download and can be played anywhere without any hassle, critics have said.
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