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DirecTV Adds a Blockbuster Ally

DirecTV Inc. and Blockbuster Inc., one time home-entertainment rivals, announced a multiyear marketing alliance last week that, at least on the surface, validates the strength of the pay-per-view movie category in its race for home-video market share.

In the deal, DirecTV gains a new distribution channel through Blockbuster's 5,000 video stores across the country.

The direct-broadcast satellite provider also plans to co-brand its PPV-movie service, currently called "Direct Ticket," using the Blockbuster name.

"More and more people are going to watch pay-per-view at home," Alpert & Associates president Mickey Alpert said. "Blockbuster is saying, If that's inevitable, why not get a piece of it?'"

Besides its nearly ubiquitous dealer base, Blockbuster brings to DirecTV its great relationships with Hollywood studios, DirecTV Merchandising Inc. president Bill Casamo said. Blockbuster can bring its straight-to-video movie content to DirecTV's PPV lineup, for example.

EchoStar Communications Corp. spokeswoman Judianne Atencio confirmed an earlier Satellite Business News report that Blockbuster had also been in talks with EchoStar's Dish Network service.

"It looks like DirecTV was willing to give a little more of the economics than we were willing to do," she added, whether it was in sales commissions for new customers or residuals on each PPV movie.

Blockbuster is "highly motivated to achieve" its goal of having as many Blockbuster customers as possible subscribe to DirecTV and enjoy its PPV movies, Blockbuster chairman John Antioco said in a press release.

In Demand senior vice president of marketing and brand director Gavin Harvey called the DirecTV-Blockbuster marketing initiative a validation of the cable industry's move to create a national brand for its PPV and video-on-demand programming.

"Blockbuster is a very well-known brand," Harvey acknowledged. "But cable has built some of the most powerful brands in the entertainment business. Look at HBO [Home Box Office] and MTV [MTV: Music Television]."

In Demand's response to the Blockbuster announcement will be to "stay the course" and "push forward," Harvey said. "As cable establishes a national brand for pay-per-view, we will be out there talking to major retail and media sponsors," he added.

Harvey maintained that In Demand's relationships with the Hollywood studios are good, and he's not concerned that the deal with Blockbuster will bring DirecTV better PPV windows than In Demand enjoys. "If that were to happen, we would respond," he added.

While there's long been speculation that theatrical movies could one day be released to PPV as soon as they're available for home-video rental, that's not likely to happen soon. "The sequence for windows is pretty much sacred," Casamo said.

Blockbuster plans to begin selling DirecTV hardware and service in the third quarter of this year. Although each participating video-rental store will feature a DirecTV display, the retailer will not stock DirecTV satellite systems for consumers to take home. DirecTV instead will use its Home Services Network to handle installations.

While it's clear that Echo-Star could have benefited from an additional form of retail distribution, Atencio said the company was pleased with its strong subscriber-acquisition numbers, which outpaced DirecTV's in the first quarter of this year, given its current distribution channels.

One Wall Street analyst who follows EchoStar said the Blockbuster deal shouldn't harm DirecTV's DBS competitor too much. "The types of people who work in a Blockbuster are not salespeople," Lehman Bros. Inc. senior vice president of high-yield research Bob Berzins said.

DirecTV's consumer electronics retailers also shouldn't be overly concerned about the new competition, B.G. Marketing Inc. president Barbara Sullivan suggested. They are more accustomed to selling, while Blockbuster is more accustomed to taking orders. "Increased competition actually leads to greater brand acceptance," she added.

Blockbuster may ultimately bring more value to DirecTV than its other retailers, because the rental-store chain attracts those consumers most likely to appreciate PPV movies, said Alpert.

"Anybody who goes into a Blockbuster watches movies on television," he added. "It's great target marketing."

DirecTV and Blockbuster met last week to discuss cross-promotional marketing plans. While details were not immediately available, Blockbuster could use its 42 million-strong mailing list to send direct-mail offers to its customer base, as well as promoting DirecTV on its Web site.

DirecTV currently offers as many as 55 PPV choices each day, and it said it plans to increase the selection with Blockbuster's help.

While DirecTV and Blockbuster at first glance appear to be strange bedfellows, it's getting harder and harder to find entertainment companies-even competitors-without some kind of common affiliations. In this case, both DirecTV and Blockbuster have alliances with TiVo Inc. and America Online Inc.

Blockbuster's deal with DirecTV is not the first time the video-rental store has promoted the multichannel-video-distribution platform. The company also reminds its independent-film-rental customers to watch Sundance Channel, thanks to a branding alliance formed last year.