Demanding a deal

Blockbuster pacts for PPV rights to U pix

WASHINGTON — Blockbuster Entertainment is close to a deal with Vivendi Universal that would give the retailer its first agreement with a major studio for pay-per-view and video-on-demand rights to movies.

Blockbuster threatened to withhold two of this week’s new Universal releases from its store shelves Tuesday if Vivendi Universal didn’t agree to the PPV terms.

In a conference call with analysts Tuesday, the same day its favorable earnings report was released, Blockbuster chairman John Antioco said the vidtailer had reached a verbal agreement with Vivendi U late Monday, covering homevideo, pay-per-view and video-on-demand rights to Universal films.

The vidtailer has been seeking those additional rights for several months, as it struggles to expand beyond its video rental base. Company recently launched a video-on-demand system in conjunction with Enron in four cities but up until now had been unable to offer its 700 subscribers any new releases from the major studios. Instead, Blockbuster had to rely on a few hundred indie films it owns.

The vidtailer is also slated to launch a 42-channel pay-per-view service with DirecTV in June.

Recently, however, Antioco signaled Blockbuster’s new get-tough attitude with the studios, saying that the chain would not renew any of its video revenue-sharing deals with the studios unless those deals also covered PPV and VOD rights.

Those deals have proved highly beneficial for the studios, and, along with Blockbuster’s 40% share of the U.S. video rental market, gives the vidtailer considerable leverage.

Blockbuster and Universal have been operating without a formal revenue-sharing agreement since October, when their previous deal expired.

“As late as yesterday afternoon, we had no deal” with Universal, Antioco said Tuesday. “As a result, we had decided that we would only purchase Universal’s retail (i.e., sell-through) priced product, which, by the way, includes all of their major hits. We also decided we would not stock the titles ‘Bring It On’ and ‘Rocky & Bullwinkle,’ which have a street date of today.”

At that point, Antioco said, the companies reached a verbal agreement to renew their revenue-sharing agreement and to grant Blockbuster the additional rights it sought. The chain will also now stock the two titles in all its stores.

Blockbuster officials declined to disclose whether the new deal covers all Universal product or when the new rights would take effect. If the deal parallels the companies’ rev-sharing agreement, however, it would likely cover all new U releases.

Blockbuster would gain access to the PPV and VOD rights during the existing windows for those delivery systems, generally 30-90 days after homevideo release.

Universal execs had no comment.

Profits up for Blockbuster

Word of the U deal comes on the heels of a strong fourth quarter for Blockbuster. Cash earnings for the video segment grew 31.6% for the quarter to $49.6 million, on the strength of a 7% increase in worldwide same-store sales.

Overall revenue for the quarter was up 12.1% to $1.34 billion, paced by a 12.5% increase in rental revenue.

For the year, cash earnings from the video segment (excluding new media) grew 55.9%, to $154.5 million. Full-year cash flow (earnings before interest, taxes, depreciation and amortization) for the video segment grew 13.0% to $588.2 million. For the quarter, cash flow grew 15.2% to $168.3 million.

Antioco said that Blockbuster is exploring a store-within-store concept to focus on a broader range of home entertainment products.

The retailer said it sold more than 100,000 DirecTV systems in its 3,800 stores in 2000. For each DirecTV system it sells, the vidtailer receives a portion of the customer’s subscription fees to the satcaster, plus a cut of all PPV revenue from that subscriber.

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