Will Blockbuster Join TV Channel X?

In efforts to turn around the long struggling company, Blockbuster (BBI), under the leadership of Jim Keyes, has gotten experimental. They’ve been testing rental kiosks, exploring cellular downloads, and evaluating concept stores. They’ve added managerial transparency. The company has even gone public with an ill received interest in acquiring Circuit City (CC) to create a new hybrid rental retail chain. Now, in the latest move from Keyes’ Frankenstein lab, Blockbuster is reportedly eying TV distribution too.

A little over a week ago, Viacom (VIA.B), MGM and Lions Gate (LGF) announced plans to launch a cable TV Channel of their own. Channel X, the so far unnamed project, aims to be a competitor to Showtime, HBO or even News Corps.'s (NWS) F/X channel. It remains to be seen whether the channel will be paid access or free, but when it launches in 2009, Channel X will have a catalog of more than 10k feature films along with hours of TV content to air.

Reports originating from the Wall Street Journal and citing “inside sources” say Blockbuster is now looking to join the venture too. According to the rumors, talks are active and progressing.

Shock of first reactions notwithstanding, Blockbusters participation may not be so crazy. As a member of the ownership group, Blockbuster could potentially acquire exclusive rental rights to the original programming aired on the network. Similar to a deal Blockbuster cut with the Weinstein Co. in November 2006 to secure exclusivity for DVD releases from the studio, they could also stand to gain exclusive rental rights to movies released from the partner studios (either in exchange for a share of rental revenue, or as part of a more complex investment arrangement).

So far few details have been disclosed about Channel X. Whatever the final product, one fact that has already been established is that there will be some form of online distribution service associated with the channel. What that means remains equally mysterious but Viacom’s CEO Philippe Dauman did say Channel X will “meet the needs of varying distributors and take advantage of online distribution… innovating both in presenting the content and distributing it.” If this takes the form of streaming or downloaded content, there could be another opportunity for Blockbuster. It’s possible, for example, that Blockbuster would pledge assets acquired in their pennies on the dollar purchase of Movielink to advance the projects offerings, likely along with cash.

None of the involved parties has provided any insight or comments. Blockbuster’s spokeswoman has said only “we are busy transforming Blockbuster into a multi-platform provider of convenient access to media entertainment. To that end, we’re exploring our option so it’s not surprising there are rumors out there.”

This may prove nothing more than such a rumor. And even if the companies are talking, there’s little to guarantee those talks aren’t merely exploratory. Blockbuster and Viacom have history, after all. Between 1994 and 2004, they were part of the same company. Not so much time has gone by that the people involved have lost touch. Just the opposite, it’s certain both businesses are well versed in each other’s operations. For them to be having a “chat” is hardly breaking news.

Details for Channel X remain scarce but if Blockbuster does in fact represent one of the constants in the equation, it will be an interesting prospect in Blockbuster’s attempt at evolution. Cheap pun notwithstanding, it’s a story to watch.