Blockbuster Talks Surface for Start-Up Premium-Movie Channel

Blockbuster May Join Paramount Pictures, Lionsgate, Metro-Goldwyn-Mayer Studios

The start-up premium pay movie channel formed by Paramount Pictures and two other film distributors is in talks with Blockbuster to join the venture, according to a report from The Wall Street Journal Tuesday.

The video retailer -- which seems to have its plate full with a proposal to buy struggling electronics retailer Circuit City for $1 billion -- was on an earlier Pali Research list of prospective “mystery” partners. Last year, Blockbuster bought video-on-demand service Movielink.

Other possible candidates are mail-order DVD movie renter Netflix or Google, Pali said, also citing a longer list of more remote prospects.

As reported, Viacom’s Paramount, Lionsgate and Metro-Goldwyn-Mayer Studios agreed to form a premium pay movie service to launch in fall 2009, when their contracts to supply films to CBS-owned Showtime expire. The new channel -- which will have Viacom’s MTV Networks handle marketing and affiliate relations -- will compete against Showtime, Time Warner’s HBO and Liberty Media’s Starz.

Pali estimated that the three foundation partners generated $350 million in movie-license fees under their Showtime deals and have told the investment community they expect to earn the same money with the new venture. Plus, they’ll have equity value of co-owning their movie-channel service.

With Blockbuster, Netflix and Google the top candidates, the Pali report also considered less likely partner prospects:, Comcast, Time Warner Cable, Sony (to team up with its PlayStation 3 movie service), Dish Network and Microsoft (to team up with its Xbox movie service).

The most remote prospects were DirecTV, which is controlled by Starz owner Liberty, and Apple’s iTunes subscription service, noted the report by Pali analysts Richard Greenfield and Ari Danes.

Pali calculated that the three film companies could match their Showtime licensing revenue if the new service garners 10 million multichannel subscribers at launch, which is two-thirds of Showtime’s subscriber base. That assumes a $5-per-subscriber, per-month retail price, $3 of which goes to the channel service.