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MARCH 3, 2010

Barely a week after Wal-Mart Stores Inc. (WMT) signaled its latest push to sell and rent movies over the Internet, Best Buy Co. (BBY) is preparing to roll out its own, revamped digital-download service.

In an Internet posting, Best Buy said its best customers are allowed one free movie rental download each month from Blue Sky Video by Best Buy, which the retailer said is "coming out soon."

A Best Buy spokeswoman confirmed the retailer will release more information on the service in the coming weeks, adding that Reward Zone Premier Silver members can access the downloads as part of new benefits to the loyalty-rewards program until then via the current link to CinemaNow.com off Best Buy's Internet site. She declined to provide other details.

Best Buy in November announced it would develop an on-demand movie and entertainment service as part of a multiyear partnership with streaming service Sonic Solutions' (SNIC) Roxio CinemaNow. The deal, which included Best Buy acquiring warrants to purchase shares of Sonic Solutions' stock, also allowed Best Buy to embed the service on various electronic devices.

Movie-rental chain Blockbuster Inc. (BBI) is another retailer that uses Roxio CinemaNow's technology for its on-demand digital-download service.

Also last year, Best Buy disclosed a partnership with video-by-mail giant Netflix Inc. (NFLX) to offer streaming video through Best Buy's Insignia DVD players. Netflix's Watch Instantly service is accessible via Microsoft Corp.'s (MSFT) Xbox 360 and Sony Corp.'s (SNE) Playstation 3 videogame consoles, too.

It was unclear Wednesday how Blue Sky Video by Best Buy will be distributed and whether the service will be embedded on the same devices that have Netflix or Blockbuster's on-demand access.

Wal-Mart last week confirmed it is buying the VUDU Inc. video streaming service, which allows high-definition movies to be digitally transmitted over the Internet to television sets and Blu-ray disc players.

Sales of DVDs--which years ago generated a lot of customer trips to stores--have entered a gradual downward slide as cheaper, more flexible ways to get movies and other entertainment content are developed. DVD sales by the movie industry are expected to drop from $13.3 billion in 2008 to $3 billion by 2013, according to market-research firm In-Stat.

Meanwhile, the use of video-on-demand services and content sales via the Internet are increasing. In-Stat estimates those categories should generate sales of $5.4 billion in 2013, up from $1.04 billion in 2008.

"We live in an on-demand world, so on-demand is happening," said Norm Bogen, a digital entertainment analyst for In-Stat. "It's happening quickly both from a technology perspective and implementation."

In In-Stat's most recent quarterly survey of consumers, more than 65% said they are extremely or somewhat interested in viewing movies via the Internet on TV.

One major obstacle to faster growth is the ease with which consumers can access a variety of content, rather than having to tap different services for different types of content, such as new-release movies or one studio's productions, Bogen said. That is where retailers such as Wal-Mart and Best Buy might be able to benefit as they offer a variety of download services on TVs, Blu-ray players and gaming consoles they sell, he said.

"You need to make it easy to access all the content," he said.

-By Mary Ellen Lloyd, Dow Jones Newswires, 704-948-9145; [email protected]

(Miguel Bustillo contributed to this article.)
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