DirecTV linking with Blockbuster

Viacom-owned Blockbuster Entertainment and DirecTV announced a joint venture last week in which Blockbuster will sell DirecTV service in its 5,000 video stores nationwide. In addition, the two companies will launch a new co-branded pay-per-view service on DirecTV.

Company executives project that the venture could add close to 6 million new DirecTV subscribers in the next few years. DirecTV's subscriber base at the end of April totaled 8.5 million subs. The companies said DirecTV's PPV window will not be affected by the new venture.

Blockbuster Chairman John Antioco told analysts on a conference call last Tuesday that the venture should add between 5% and 15% to the company's earnings by next year. Based on 1999 results, when Blockbuster posted earnings before interest, taxes, depreciation and amortization (EBITDA) of $514 million, that would mean an additional $25 million to $77 million in annual EBITDA.

Antioco said the venture would give Blockbuster three new revenue streams: a share in the PPV revenues generated; a commission on the sales of DirecTV packages sold through Blockbuster retail outlets; and residual payments based on a percentage of the monthly revenue derived from those subscribers.

Antioco said the company projects that 6 million of Blockbuster's 40-million customer base will add satellite service in the next five years. "We plan to sell a DirecTV system to the vast majority of them," he said. "We expect to become the largest distributor of satellite service in the country."

Installation of the Blockbuster-sold DirecTV packages would be handled by DirecTV Home Services Network, said Bill Casamo, president of DirecTV Merchandising sales. Casamo asserted that DirecTV already offers the "premier" PPV service to TV viewers, with more than 50 offerings at any one time. But aligned with Blockbuster, the PPV service will be enhanced he said.

The executives said that the satellite subscriber base is expected to double by 2005, to about 25 million. Satellite PPV revenues should climb from $525 million to over $1 billion in the same time period, they said. Their venture may not accelerate that growth, but it will increase DirecTV's share of new customers and improve PPV buy rates by DirecTV customers, they said. The current buy rate is about one title per month.

This year, Antioco said, Blockbuster will focus primarily on selling DirecTV systems. The co-branded PPV venture will launch early next year, he said. "We want to achieve reasonable penetration before re-branding."

The brand name for the PPV service has not been determined, but Antioco said a name such as Blockbuster DirecTicket is being considered. Antioco said the goal is to double DirecTV's PPV revenues, estimated at close to $300 million, in the first couple of years of the re-branding.