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Blockbuster Buys Movie Download Service

If it's true what they say about imitation being the sincerest form of flattery, you have to wonder what Blockbuster CEO Jim Keyes is buttering Netflix co-founder and CEO Reed Hastings up for.

You might ask because today Blockbuster Inc. announced it acquired Movielink, calling it "one of the nation's leading movie download services." Another such leader is Netflix, of course, which began offering its members movie downloads in January.

In statement, Blockbuster said the acquired company gives its customers access to one of the largest libraries of downloadable movies and a large array of television content. Through the service, customers will be able to legally download entertainment content for rental and for purchase.

The content will play over customer PCs, PCs, portable devices, television-connected home networks and approved set-top boxes.

Movielink was started in 2002 through a joint venture of Metro- Goldwyn-Mayer Studios Inc., Paramount Pictures, Sony Pictures Entertainment, Universal Pictures and Warner Bros. Studios. It has rental and purchasing license agreements with those five founding studios, as well as more than 30 other studios, television-content distributors, and foreign and independent content providers, Blockbuster said.

Terms of the agreement were not disclosed.

"Our acquisition of Movielink, with its associated digital content, is the next logical step in our planned transformation of Blockbuster," Blockbuster Chairman and CEO Jim Keyes said in a statement.

Of course, the move to allow customers to view movies over the Internet was the next logical step for Netflix last January. But Netflix's leadership in the industry is a well-established pattern at this point. Netflix debuted its no-late fee, unlimited through-the-mail DVD rental service in 1999. And after Blockbuster started its own in 2006, Netflix even went so far as to sue.

"From top to bottom, Blockbuster is deliberately and willfully infringing on our patented methods," Netflix spokesperson Steve Swasey told internetnews.com at the time.

But leadership is putting Netflix out of Blockbuster's reach. Lately, the tightening competition seems to be hurting both companies.

Last month, Netflix announced it was cutting the price of two of its most popular subscription plans by $1. When Netflix reported its 2007 Q2 earnings the next day, investors found out why.

"As expected, intense competition slowed second-quarter revenue and subscriber growth, even while we delivered near-record net income,” Netflix co-founder and CEO Reed Hastings said in a statement.

Blockbuster didn't fare much better during Q2. Total revenues decreased 2.8 percent to $1.26 billion for the second quarter of 2007 from $1.30 billion for the second quarter of 2006.

Keyes, likely alluding to today's acquisitions, urged investors to remain calm.

"The company is undergoing a comprehensive review of its business aimed at identifying and implementing initiatives designed to revitalize the company," Keyes said in a statement to announce the results.

Blockbuster said it plans to continue to operate the Movielink service and to eventually make elements of the service available through blockbuster.com.