DirecTV, Blockbuster Form Alliance - Twice

DirecTV, Blockbuster Form Alliance

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EL SEGUNDO, Calif. - DirecTV and Blockbuster announced a joint marketing venture that will give the video rental chain a co-branding opportunity on the satellite platform's pay-per-view services, and the ability to retail DirecTV systems through 5,000 of its brick-and-mortar rental outlets.

John Antioco, Blockbuster chairman, said the cross-marketing alliance would enable his chain to derive revenue from three new streams. The first will be the standard commission fee DirecTV will pay the chain for a new system sale, the second will come from ongoing residual monthly subscription fees and third will be a cut of the $2.99 pay-per-view (PPV) fee charged for each movie order.

Antioco said Blockbuster expects to earn incremental revenue of between 5 and 15 percent from the effort, beginning next year.

"If we only get five percent penetration of our active customers . that would be a home run for Blockbuster for the next decade," Antioco said.

Implementation of the plan will start with deploying kiosks and training commissioned sales people. The PPV component will begin after Blockbuster has sold an unspecified number of units into the market.

Under the plan, Blockbuster will train sales associates to sell the DirecTV service from in-store demonstration kiosks. Blockbuster will register the system sale and DirecTV will notify its Home Services Network installation force (the group that has handled Primestar installations and service) to deliver and install the hardware at customers' homes.

After the system commission, Blockbuster will receive residual payments from the monthly payments for service on each system it sells for as long for the duration of the relationship. Additionally, every time those customers order PPV movies, Blockbuster will receive an unspecified payment, which Antioco said is higher than net profit the chain makes on each current VHS movie rental.

"This gives customers more options for home entertainment than ever before," Antioco said, "and it gives Blockbuster the chance to participate in the work of emerging technology. We have said that Blockbuster intends to be a provider of in-home entertainment regardless of the delivery channel."

For its part, DirecTV expects to benefit from what Antioco termed the "tremendous reach of Blockbuster stores across America."

Bill Casamo, DirecTV merchandising president, called Blockbuster's brand presence "ubiquitous." The chain, he said, will help to expand DirecTV's household penetration rate and will help DirecTV increase its average monthly PPV order rate.

Through the deal, Blockbuster will use its database of 42 million households and $200 million marketing budget to help DirecTV better allocate its channel capacity for titles offering the greatest order potential. The store will also make members aware of the PPV offerings through its current promotion vehicles including direct mailings and Web site announcements.

Casamo said DirecTV has not yet determined which hardware brands would be used for distribution through the Blockbuster deal. A DirecTV spokesman said any manufacturers selected would be at liberty to assist in the training of Blockbuster's retail sales people.

Another potential new dimension to the deal could involve TiVo, the developer of a personal television recording system, which has previous marketing arrangements with both DirecTV and Blockbuster. TiVo executives said they are working on a system to deliver special PPV programs to subscribers through various platforms.

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