Blockbuster Desperate To Do Something, Buys A Loser

Blockbuster announced the acquisition of movie download site Movielink this evening. The price is not being disclosed (meaning it isn’t “material” to Blockbuster’s shareholders), although the Wall Street Journal says it was less than $20 million.

Movielink was created in 2002 as a joint venture of most of the big studios – Metro-Goldwyn-Mayer Studios, Paramount Pictures, Sony Pictures Entertainment, Universal Studios and Warner Bros. Studios. $100 million or so was spent building the company.

That’s $80 million in losses for the studio investors on their Movielink project, which is money that could have been invested in higher ROI investments. Like suing their customers.

This is clearly a hedge move by Blockbuster, which is locked in a death spiral with the cheaper and more convenient Netflix. Netflix also launched an awesome free movie on demand product earlier this year (and are using much of their operating profits to fund it). Until now, Blockbuster had no answer.

But Movielink certainly isn’t going to be a silver bullet for Blockbuster. We looked at all of the players in Movielink’s space last October. Their competitors include, besides Netflix, Amazon, iTunes, CinemaNow and Guba (and, let’s be honest, BitTorrent). Movielink has a very deep library of movies, but they are DRM’d to the hilt and the studios force them to price downloads at higher-than-dvd prices.

Blockbuster’s salad days ended in 2002, and the stock has slid steadily since then. It is no longer profitable. There are just too many options for consumers who want to watch movies at home. The company’s biggest asset, and biggest problem, are the long term leases it has on its 9,000 retail stores. It needs to defocus on Netflix and think about how to use those stores to its advantage. Otherwise, its long term prognosis is clear – deadpool.