Tesco Acquires Blinkbox to Push VOD Mainstream

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Supermarket giant Tesco has bought 80 percent of U.K. video on-demand (VOD) outfit Blinkbox in a move that mirrors the recent $250 million purchase by Amazon of LoveFilm and Walmart's acquisition of Vudu. It is also a signatory to DRM system UltraViolet which should help the business secure more content from U.S. studios.

Claimed as the world's third largest retailer Tesco this week posted profits of $4.5 billion. With an existing packaged media rental business, Tesco said the Blinkbox deal would position the company ‘for the next stage in the internet-driven revolution in home entertainment.'

Tesco certainly has the resources and brand reach to become a significant player in the U.K.'s VOD market, and has identified online services as a key growth area. It reported online revenue growth of 15 percent and plans to become a ‘multichannel retailer'.

"Whether customers want to own the DVD, download a digital movie, stream a rental, or all three, Tesco is committed to giving customers choice," said Richard Brasher, chief executive of Tesco's U.K. operation in a statement. "We want to allow them to decide how they access entertainment content and on which devices, whether it's on PC, TV or tablet."

Blinkbox's 2 million monthly visitors can access a library that includes 9,000 titles through deals with broadcasters and producers such as BBC Worldwide, Channel 4, ALL3Media and FremantleMedia, as well as U.S. studios Warner Brothers, Universal, Fox, Paramount, and Discovery Networks.

Tesco is a member of the DECE consortia which is rolling out the Ultraviolet DRM system for physical and virtual media later this year in the U.S. and U.K. The Blinkbox deal could pave the way for pacts with consumer electronics firms for bundling Tesco branded VOD into set-top boxes and connected TVs.

"Consumers need to know that when they buy a digital copy of a title it will work on multiple devices," said Blinkbox CEO Michael Comish. "They want instant access on every device. Without Ultraviolet, this would not likely be universally available."

The online service offers a mix of ad-supported and pay-per-view content and is available on PC, Mac, PS3, Samsung, and Sharp TVs and Galaxy tablets.

"Ad supported economics are simply not as good as pay margins," said Comish. "Very few shows are such a must-see that consumers are willing to pay for a single episode. Better to bundle and charge more. For the right show, consumers will pay for the series. Our box sets account for over 90 percent of the total volume we sell on Blinkbox. Better still, group a number of series together into a subscription. Margins improve for everyone as you move from a single episode to a series to a subscription.

He added: "Consumers have a much higher propensity to pay on TV and on tablets than they do on PCs. The move into the living room and onto the tablet has created a unique opportunity to shift to paid programming. This is a fundamental change which will be clear to the market in two years time -- post smart TVs, YouView, and tablets mania. It's not about micropayments -- it's about pay TV -- and the most successful model will be subscriptions."

Blinkbox was formed in 2006 by former C4 New Media executive Comish and Vodafone's former content chief Adrian Letts and launched in 2008 with backing from private investors Eden Ventures and Nordic Venture Partners.

Tesco already offers MP3s to download and even has a production pact with Amber Entertainment that plans to produce straight-to-DVD films based on popular novels.

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