Blockbuster, DirecTV Sign Sweetheart Deal

The business world has a strange way of making putative adversaries into the best of friends. Blockbuster Inc., the nation's largest video rental chain, has struck a sweetheart deal with DirecTV, the nation's largest direct-broadcast satellite service. The two businesses have long been viewed as competitors for the same customers.

The marketing agreement announced May 9 will have Blockbuster selling DirecTV equipment from its 5000 US stores beginning this autumn. DirecTV will return the favor by "co-branding" its pay-per-view movie service with Blockbuster's name. Dallas-based Blockbuster has about 42 million regular customers; El Segundo, California–based DirecTV has approximately 8.5 million subscribers. Blockbuster is majority-owned by media conglomerate Viacom Inc., and DirecTV is a unit of Hughes Electronics Corp., which itself is a unit of General Motors Corp.

What do the two businesses and their parent organizations have to gain from this arrangement? DirecTV, which already has a distribution deal with RadioShack, will gain enormous exposure in Blockbuster's thousands of stores. The video chain will earn revenue for each DirecTV system sold in its stores, as well as a percentage of pay-per-view revenues from movies ordered via DirecTV.

"DirecTV and Blockbuster are two of the most recognized brand names in home entertainment," said Bill Casamo, president of DirecTV Merchandising, Inc. "Together we have an opportunity to promote our products to millions of existing and prospective customers, and deliver a compelling portfolio of home entertainment services."

Blockbuster CEO John Antioco said: "Blockbuster is expanding its universe into the fast-growing satellite pay-per-view market, giving our members more options for home entertainment than ever before. Our goal is to add significantly to our financial outlook by having as many Blockbuster customers as possible subscribe to DirecTV and enjoy movies over pay-per-view."

According to Antioco, the future of the video rental business is uncertain, and he wants to move his company into the electronic delivery of movies to the home. Apart from early experiments renting video players, his employees have never dealt with hardware sales; Blockbuster will have to hire extra workers and train them to sell the satellite systems.

Studies indicate that video renters who sign up with satellite services typically reduce their rental spending by 50%, but Blockbuster expects its increased revenue from the new deal to more than make up for lost rentals. DirecTV offers as many as 55 pay-per-view movies daily.