Rumor, Not Fact: Blockbuster May Join Divx

Money changes everything. Circuit City, parent company of Divx, has enjoyed a stock run-up recently due to rumors of a possible equity partnership deal with video-rental chain Blockbuster. In the deal, Viacom-owned Blockbuster would buy into Divx, considerably strengthening the pay-per-view startup's financial footing and giving it instant credibility in the video-rental market. Blockbuster has more than 600 stores nationwide.

The story, which was first reported on March 16 by Paul Gluckman of TV Digest, has circulated continuously since. Spokespeople from Viacom, Circuit City, Blockbuster, and Divx have all declined to comment on the situation. An automated reply to e-mail inquiries at Blockbuster says simply that "Blockbuster does not comment on rumor."

Blockbuster executives are said to be unhappy with profits from DVD rentals. At current prices, the format is more a sell-through product than a rental vehicle. In addition, video stores can't compete with the liberal terms of online rental operations, whose typical weekly rental fees are the same as most stores' daily rates.

Many observers predicted that Divx, which had a rocky beginning, would never exceed more than 10% of the DVD market, if it survived at all. According to the Consumer Electronics Manufacturers Association, 1,715,317 DVD players were sold in the US during the format's first two official years, ending March 21. Approximately 200,000 of them were Divx machines, which represents roughly 11% of the total.

There are about 350 Divx titles available, which is about 14% of the more than 2500 open DVDs. Divx machines can play both types of discs.

Circuit City has pumped more than $210 million into promoting Divx in the past two years. An infusion of cash and a huge exposure in the marketplace might work wonders for the company's financial picture. Stock analysts say a Blockbuster-Divx linkup could have a "significant impact" on investors' interest in Circuit City.