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AOL in Blockbuster deal
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November 3, 1999: 8:06 p.m. ET
World's top online service to invest $30M in video firm; hints at possible IPO
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NEW YORK (CNNfn) - America Online Inc., the world's biggest online service, said Wednesday it would make a $30 million equity investment in Blockbuster Inc., giving the video-rental company long-awaited high-speed programming capabilities for the first time.
The deal may also set the stage for a possible public offering of Blockbuster's Internet division.
Under the three-year pact, AOL will give Blockbuster (BBI) prominent screen space in the entertainment and video portion of its Web site, giving users access to Blockbuster's products.
Blockbuster, in turn, will spruce up its own Web site, which will be launched at the end of this month, to provide access to other AOL sites. Blockbuster has also agreed to provide "significant off-line promotion" of AOL and its products.
The deal gives Blockbuster its first true foray into the e-commerce side of home theater rentals and purchases -- something for which it has been criticized for not acting upon sooner.
Skeptics still claim Blockbuster, which has more than 65 million household accounts, is part of an industry that is likely to one day be replaced by video-on-demand services made over broadband cable into the home - a claim company officials dispute, noting their rising account numbers.
Beginning next year, Blockbuster customers will also be able to reserve and check-out videos online, a service that will be bolstered by its new enhanced access to AOL's 19 million customers.
The deal could also prelude a possible public offering for Blockbuster.com, the company's Internet arm, company officials said.
"We're structuring this as a subsidiary of Blockbuster so [that] in the future, if indeed we wanted to do an IPO, we could," Shellye Archambeau, senior vice president of e-commerce at Blockbuster, told Reuters.
Archambeau said the company's goal was to raise in excess of $100 million in equity for Blockbuster.com, while retaining a 90 percent ownership stake. She declined to name any other specific partners being considered.
The agreement should help rekindle interest in Blockbuster's name with the investing public and boost the sagging value of its shares, analysts said.
Blockbuster, which is 82-percent owned by media company Viacom Inc. (VIA), has watched its languish in the $12 to $15 range since going public at $15 a share in August. The low share price even caused CBS Corp. (CBS) officials to rethink Viacom's plan to spin off the company sometime next year.
But word of the AOL deal helped send the company's shares up 1-3/8, or 11 percent, Wednesday to close at 12-7/8. AOL shares surged 5-7/8 to close at 139.
--from staff and wire reports
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