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Video rental chain buys MovieBeam

Sale of on-demand set-top box service to Movie Gallery, at $10 million, is well below last year's investment of $48.5 million.

Erica Ogg Former Staff writer, CNET News
Erica Ogg is a CNET News reporter who covers Apple, HP, Dell, and other PC makers, as well as the consumer electronics industry. She's also one of the hosts of CNET News' Daily Podcast. In her non-work life, she's a history geek, a loyal Dodgers fan, and a mac-and-cheese connoisseur.
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Erica Ogg
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Although investors poured $48.5 million into MovieBeam last year, the set-top box on-demand movie service was acquired Wednesday for just $10 million by video rental chain Movie Gallery.

Movie Gallery, the second-largest video rental chain, with 4,600 locations in North America, said it will sell the MovieBeam service in its Movie Gallery and Hollywood Video stores. But the acquisition is part of a longer-term strategy, in which the Blockbuster competitor plans to use the service as a jumping-off point for other methods of digitizing and delivering video content to customers, including offering movie downloads and streaming video, Movie Gallery said in a statement.

Originally launched by Disney as a way for frequent movie renters to avoid trips to video stores, the deal appears to underscore the disaster MovieBeam has been for investors.

Initial ideas for MovieBeam were ambitious, but the company has not managed to effectively compete with other types of services that bring video content directly to the home. Video-on-demand is now available from many cable providers, and TiVo, Netflix, Amazon .com Unbox and Apple are all bringing major studio titles directly to consumers.

MovieBeam did not return requests for comment.

The service is currently available in 31 major markets nationwide. Disney halted the service in early 2005 and eventually spun it off as an independent company. MovieBeam was relaunched in February of last year with financial backing from Cisco Systems and Intel.

For a $199 fee, the MovieBeam box can store up to 100 new releases each month, and individual movies can be viewed for $3.99 at any time. The service uses a technology called "datacasting" to wirelessly deliver content to each box using TV signals.