Blockbuster's brick-and-mortar Netflix defense

It's a virtual world, the video king says, but lots of real estate will be an asset for quick delivery of movies.

REDWOOD CITY, Calif.--Blockbuster plans to use its rental outlets to deliver movies by mail next year.

In an attempt to undercut rivals like Netflix and stave off the appeal of video-on-demand services, the rental giant will start to employ its retail outlets as distribution centers, so consumers can rent a movie via the Internet more rapidly, even the next day, said Shane Evangelist, a Blockbuster senior vice president and online general manager.

"If you're in Duluth, we can do next-day delivery," he said at this week's Consumer Technology Ventures conference here.

Like Netflix, Blockbuster currently lets customers rent movies through the mail via the Internet. Now, these movies come from centralized distribution centers. Sending movies from a closer retail outlet will cut costs and delivery time. Since Blockbuster already owns these movies for its retail business, the cost of goods for the program should be relatively low, Evangelist asserted.

The company will first exploit its real-estate holdings for the rental market and then expand it to drive DVD sales, he added.

Blockbuster and other rental outlets are rapidly trying to modernize in the face of growing competitive threats. At the conference, several start-ups were promoting new ideas and products for bringing premium content directly to the home. Cable operators, which will likely be the ones to deliver much of this content, also spoke warmly of the concept.

These proponents predict that film studios in the relatively near future will begin to release more films to video-on-demand and release them earlier.

"The real issue is when video-on-demand is going to become a window that gets respect in the digital marketplace as a first opportunity," said Curt Marvis, CEO of CinemaNow, a Web site that lets consumers download movies, concerts and other premium content. "Piracy, ironically, will probably drive the content providers to drive into the window earlier. You will see the studios shift to deliver movies at an earlier time" to pay-per-view services.

Netflix reduced its monthly subscription rate recently to compete more aggressively with Blockbluster, Wal-Mart Stores and, soon, Amazon.com. Reed Hastings, CEO of Netflix, said in recent weeks that he has confirmed that Amazon plans to introduce a rival DVD-rental subscription service soon. Amazon has not confirmed that it will do so, but the company has said that its customers request such a service.

Ed Cholerton, vice president of DSL at SBC Communications, theorized that the broadband lifestyle, which involves accessing content from a variety of devices and VoIP, or voice over Internet Protocol, home service, will be a reality in 12 months as networks improve.

For his part, Evangelist said that Blockbuster continually examines video-on-demand technology. It even has a pilot project under way in the United Kingdom. Still, rental, retail and mail delivery won't go away anytime soon. Rental, according to some predictions, will still be about 10 times as large as video-on-demand four years from now, he said.

The mail-order business is also gaining the company customers. More than 50 percent of Blockbuster's mail-order customers are not traditionally Blockbuster renters, he added.

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