America Online Inc., the world’s largest Internet service provider, said Wednesday it will invest $30 million in Blockbuster Inc. to develop the vidstore chain’s Web site and high-speed services.

Under terms of the three-year pact, Dulles, Va.-based AOL will help revamp Blockbuster’s Web site, which will also become the exclusive retailer of homevids, DVDs and vidgames on AOL’s popular entertainment channel. The spruced up site will be launched at the end of this month.

In exchange, Blockbuster will advertise AOL’s services on its in-store television network, through TV spots, programming such as the Blockbuster Entertainment Awards and distribute free copies of AOL software at 4,000 of its U.S. stores.

Major coup

Deal is a major coup for Dallas-based Blockbuster, which has 65 million active members worldwide and operates 6,900 stores worldwide.

Slow to hit the Web until now, the company’s site will now have access to AOL’s 19 million subscribers. It gives Blockbuster its first true foray into the e-commerce side of homevid sales, something it has been criticized about for not acting upon sooner.

John Antioco, chairman and CEO of Blockbuster, said the deal gives both companies “immediate opportunities to offer new services to both our memberships and creates a foundation to capitalize on emerging home entertainment technologies.”

The deal is also expected to push Viacom, with an 80% stake in the vid rental chain, to take a second look at taking the company public on Wall Street earlier than planned.

Stock boost

Blockbuster’s sagging shares received a much-needed boost Wednesday as its stock rose $1.38 to $13.88.

Viacom has been holding back on an IPO as Blockbuster’s stock has hovered around $12 to $15, below the price of its initial sale of 18% of the company for $15 a share in August.

“We are thrilled with this innovative new alliance with Blockbuster, which benefits both companies and consumers,” said Bob Pittman, prexy and chief operating officer of AOL. “Blockbuster will make it easy and convenient for our members to find new and classic videos from its industry-leading roster of titles.”