Blockbuster deal with AOL hints of video retailing future

Discount Store News, Jan 3, 2000 by Robert Scally

Rental set-up via portal first step toward independent site

Blockbuster has re-launched its e-commerce site, Blockbuster.com and has signed a strategic alliance with America Online that could lead to on-line delivery of video content.

With this agreement, Blockbuster will gain access to AOL's 20 million on-line members while it makes its first major move into e-commerce and the electronic delivery of entertainment products.

"The coupling of AOL's leadership in interactive services with our strength in home entertainment provides us both with immediate opportunities to offer new services to both our memberships and creates a foundation for the two companies to capitalize on emerging home entertainment technologies," said John Antioco, Blockbuster's chairman and ceo, in a statement.

Blockbuster will have a presence in the Home Video area of AOL's Entertainment Channel.

AOL members will have access to home videos and entertainment information on Blockbuster.com.

In addition, the agreement will give AOL members access to Blockbuster's premier entertainment products by going to a co-branded AOL/Blockbuster.com Web site or by using AOL keyword: Blockbuster.com.

AOL, in turn, gets the benefit of a relationship with one of retailing's best-known brand names.

For its part in the partnership, Blockbuster will distribute AOL software and promote AOL in its television advertising, on its in-store TV network and during its annual televised Blockbuster Entertainment Awards.

"With a powerful consumer brand name and extensive U.S. retail presence, Blockbuster also will effectively promote our AOL service and new AOL 5.0 software to their customers," said Bob Pittman, president and coo of AOL.

The partnership is also significant for AOL because it benefits from Blockbuster's ubiquitous retail presence. Blockbuster claims to have 65 million active member accounts worldwide and stores within a 10-minute drive of nearly 60% of the U.S. population.

"Blockbuster will make it easy and convenient for our members to find new and classic videos from its industry-leading roster of titles," Pittman said.

AOL and Blockbuster have partnered on promotions in the past. In 1995, AOL made a deal with Blockbuster for a special Christmas gift package of software that was offered to video renters.

The moves into cyber retailing by Blockbuster are part of its plans to eventually extend its core video rental business into electronic entertainment services such as pay-per-view or video-on-demand.

Although it is the nation's leading video rental chain with about 4,000 locations in the United States, Blockbuster is late getting into the cyber retailing game.

Blockbuster competitors DVD Express and Reel.com, which announced last month that it will be spun off from the nation's No. 2 video rental chain, Hollywood Video, in an initial public offering, already promote their businesses on AOL.

Numerous other major online retailers such as Amazon.com, Bestbuy.com and Borders.com also offer VHS and DVD videos for sale.

The new Blockbuster Web site offers video games, soundtracks, VHS videocassettes and DVD video discs for sale.

Blockbuster plans to move into video rentals via the Web next year, according to published reports. Eventually, as high-speed Web connections become more common, other products such as video-on-demand or pay-per-view programming may be part of the Blockbuster's on-line offerings.

AOL is investing $30 million to buy a 3% stake in Blockbuster.com. Blockbuster plans to eventually line up $100 million in investments from various strategic partners while retaining 90% ownership of the Web site, according to published reports.

Aside from the alliance with AOL, Blockbuster is also using a number of firms to help build and operate its new on-line venture.

OrderTrust of Lowell, Mass., a firm that provides integrated order management services for Internet retailers, is handling Blockbuster.com's order management services.

Blockbuster.com is using OrderTrust's order management network for real-time credit card authorization, inventory checking, routing orders to the appropriate suppliers, managing and tracking order information and order status, said Wendy Wheeler, vp of marketing for OrderTrust.

"We're kind of the air traffic controllers of shipping merchandise ordered over the Web," Wheeler said.

While, unlike many on-line retailers, Blockbuster maintains its own inventory of VHS, DVD and audio products, many of the other ancillary items the retailer sells on its new site will be shipped by third-party sources.

"Part of the plan for the Web site is to add non-video merchandise, and in that case they want to be able to have those items drop-shipped," Wheeler said.

Using a system such as OrderTrust's also allows Block-buster.com to quickly reconfigure itself to meet the demand of new trends in entertainment retailing.

"In the home entertainment market, it's critical that we can add and change suppliers with optimal speed and ease to capitalize on what's hot at any given moment," said Shellye Archambeau, senior vp of e-commerce for Blockbuster.