We caught up with Netflix CEO Reed Hastings at the movie rental company’s event where it awarded a $1 million prize after a contest aimed at improving the accuracy of movie recommendations. He spoke about his hopes of working with Apple on the iPhone, the possibility that YouTube will beef up its movie service, and the future of the DVD.

Reuters: What will Netflix subscribers gain from the improvements in the recommendation system?

Hastings: It’s doubling the quality of our movie recommendation and that helps our subscribers get more enjoyment from movies. Because more often they love the movie they watch. More often the movies recommended will will turn out to be movies that you love. If you watch a couple of movies and don’t like many, you start to watch (sports and other programming). If every movie is incredible, you start to watch more.

Reuters: Netflix video streams on Microsoft’s Xbox Live system. What about the PS3 and Wii?
Hastings: Eventually we want to be on all the game consoles, all the Blu-ray players, all the Internet TVs. So we are working in parallel with all of those efforts. Currently our Xbox deal is exclusive and we haven’t characterized it more than that.

Reuters: Any plans to work in partnership with Apple and the iPhone?
Hastings: it’s something that’s likely to come over time. But nothing in the short term. (With) movie watching, we are not focused on mobile yet, but (instead) on the TV, on Blu-ray and on the video game consoles. We will get to mobile eventually, including the iPhone.

Reuters: What of Youtube’s potential movie service?
Hastings: I think there will be a lot of competition in this market: Hulu, Apple, Amazon, Youtube, Blockbuster. Internet video is a huge opportunity. And there will be a lot of people engaged, and that is going to be great for the consumer. All of us are going to innovate and compete with each other and provide more and more value to the consumer.

Reuters: How far along are we on the transition to all digital video watching?
Hastings: There will be people doing DVD-by-mail in 15 or 20 years, so I think DVD will last a long time. Our best guess is that DVD will peak for us in 5 or so years. But it is continuing to grow. And the streaming is exploding. So we are getting nice growth in the DVD side and huge growth on the streaming side.

Reuters: What do you make of Blockbuster’s store closing plan?
Hastings: Blockbuster and Redbox really compete on  doing the inexpensive new releases, and we are much more the streaming and the catalog. Their closings don’t really benefit us. It will benefit Redbox more than it does us.

Reuters: Have you been approached about an acquisition or partnership?
Hastings: We don’t comment and any acquisition prospects.

(Photo: Reuters archive)

Here’s the thing about Blockbuster: like other cultural icons, its synonymous with its service — renting movies from a local store.

Sure it does other things, rents video games, sells gadgets and point-of-sale popcorn, but most of us hear the name Blockbuster and do a quick mental check — “did I return that rental copy of “To Sleep With Anger”? (Ok, maybe that’s just me.)

But even with the spectre of looming debt, and market talk that bankruptcy might be an option it’s exploring (an idea the company flatly denied), Blockbuster is mapping out a future where Blockbuster = Movies (not so much on the “local store” part).

Its latest step on that path is a partnership that lets TiVo’s subscribers access (later this year) movies and video from Blockbuster on Demand. It joins TiVo’s roster of other video suppliers — Amazon, Jaman, YouTube, CinemaNow and Blockbuster’s archrival Netflix.

Although mentioned quietly as an aside in an Interview, Blockbuster executive Kevin Lewis also reiterated that Blockbuster is “enabling the Apple ecosystems” in its own services, which could someday mean a marriage of sorts between the video provider and the iPhone.

It’s too soon to tell if that is enough to help. But is that enough to withstand the onslaught of video available to a changing demographic that thrives on free video from myriad sources (some illegal). At least shareholders are pleased. The battered stock is up more than 17 percent today.

Then again, blogger Dan Frommer calls the TiVo-Blockbuster deal “insignificant.”

What do you think?

Keep an eye on:

• Houston Chronicle lays off 12 pct of staff. (Houston Chronicle)
• Facebook may tweak its layout… again. (WSJ)
• Google top execs keep $1 paychecks (AP)

(Photo: Reuters)

Get ready for Vevo, or whatever YouTube and Universal decide to call their premium online music site.

It’s no sure thing a deal will get done, of course. One source told Reuters that negotiations have “literally” just started and key details, like financial terms, are still undecided.

Still, at first glance, this seems like it could be one of those win-win deals and both sides would probably be smart to work out an arrangement.

For Google, it would mark one way in which they could pull some revenue from YouTube, which it has been seeking to do given its $1.65 billion investment in the site. It would also help smooth over sometime rocky relations with the media industry, while avoiding future disputes like the one it now has with Warner Music (Late last year, after negotiations broke down, Warner demanded that YouTube pull down all music videos on the site featuring its artists).

And for Universal? It lets the music label showcase (in a protected environment) videos from artists like U2 and the Killers — and that’s no small thing when you’re scrounging for all the album sales you can get. What’s more, a deal could finally create a way for music labels to start making more money from videos (presumably, there would be a revenue-sharing deal from advertising that YouTube would sell).

We need to hear more. But right now, it sounds pretty good.

Keep an eye on:

• Google Chief Executive Eric Schmidt admires Twitter, despite viewing it as a “poor man’s email system” (Reuters)
• Blockbuster’s same-store sales rose in the fourth quarter as strong demand for electronics and video games overshadowed a slump in rentals (Reuters)
• HarperCollins Publishers is opening a new imprint, only a month after it cut jobs and closed down a full division (NY Times)

(Photo: Reuters)

In tough times, perhaps the maxim "beauty is in the eye of the beholder" is even more true.

In the eyes of Blockbuster CEO Jim Keyes, your local video rental joint is a kind of temple for story-loving consumers anxious to find just the cinematic gem they most desire, so they can "Go Home Happy." That's what makes it different than online video rental shop Netflix, right, Jim?

Reuters:

Given the economic concerns, and as you eye staff costs, might you perhaps automate the in-store movie checkout process? Maybe eliminate the kid behind the counter?

Jim Keyes:

This is an art - it's movie matchmaking. It's a very important art that we are trying to bring back into our culture, rather than replace with a computer. And we think actually it represents a point of differentiation for Blockbuster to have that person at point of sale to talk to...  So it's actually quite the opposite. Much of the savings that we have found in other areas we have been trying to redeploy back into the store to enhance the store labor.

What's that you say, dear reader? Your local Blockbuster's employees are more like teenage mallrats than movie matchmakers? Tell it to his boss. Or in our case, his boss's boss's boss.

Reuters: But my guy at my blockbuster isn't quite there yet...

Jim Keyes:

He's not there yet? We've got a little training opportunity? (he laughs, while quietly pulling out his Blackberry). Which store is it?

Reuters: Forest Hill, New York (just east of Manhattan)

Second Reuters Reporter: Yeah that's not a very good one...

Keyes: (Still smiling, but quickly thumbing his Blackberry)

I think we can handle that.

(Dear Forest Hills Blockbuster employees: Ummm, Sorry. All the best, Reuters)

(Photos: Keyes, Reuters; Employees, Blockbuster.com)

Sorting out what the economic downturn means for the sports world has become something of a sport itself.

Will consumers’ need to escape with some old-fashioned football trump their anxiety about shelling out hard-earned money for tickets, parking and hotdogs at the game?

Will TV broadcasters cash in on higher ratings, as consumers skip more expensive entertainment to spend time at home watching baseball or basketball on television? Or has devastation across the financial services and auto industries — two big advertisers in sports — doomed TV broadcasters regardless of audience size?

We already know what happened with GM and Tiger Woods.

“If you just look at the numbers, straight at the numbers, on the broadcast side in sports, anywhere — and especially when you look at football or anywhere — between 6 percent to 8 percent of their revenue is automotive and then you take out the financial picture there and now maybe you’re up to 9 percent or 10 percent,” MPG North America Chief Operating Officer Steve Lanzano told the Reuters Media Summit. “That’s a ton of money that’s moving out of the marketplace. That is very scary.”

NFL Executive Vice president Eric Grubman acknowledged that the economy is hurting the league on several fronts: it makes financing tougher; it crimps advertising revenue for its partners; and it undercuts consumer spending on everything from tickets to jerseys.

But, says Grubman, it’s not all gloom and doom.

“There is a part of the National Football League that is I believe very countercyclical and very recession resistant. And that is that when people are experiencing tough times… economic or otherwise… they go back to things that they love and they go back to things that they enjoy. And sports is one of them,” he said.

Hmmmm.

NASCAR and Major League Baseball drop into the Reuters Media Summit later today.

Keep an eye on:

• National Amusements Inc’s negotiations to restructure its debt are moving slowly — that means a deal may not happen this year (WSJ.com)
• Blockbuster will sell tickets for top U.S. concert producer Live Nation (Reuters)
• Publicis Groupe is building its Asian assets with a deal to buy W&K Communications, a full-service agency in China (Adweek)

(Photo: Reuters)

Blockbuster got into the set-top box game right in time for the holiday season with a new digital media player that brings fewer but newer titles from the Web to TV six months after arch rival Netflix launched its $99 Roku set-top box. Netflix followed that launch with similar partnerships with Tivo, Samsung, LG Electronics and Microsoft.

And that’s just the tip of the iceberg. While the number of people who watch movies or TV via the Web is still small, media and technology executives believe a host of new technologies will make Web to TV a mainstream staple. Vudu already sells a $299 set-top box that lets users download TV shows, while Microsoft’s Xbox 360 and Sony’s PS3 game consoles can also be used to download programming from the Web for TV viewing.

Apple of course is trying to take a bite of the market with its Apple TV device that lets viewers download shows from their computers onto their TVs.

This could save consumers a lot of money– bypassing the need to pay hefty cable fees — and a lot of time when you factor in all the hours spent watching commercials. These devices do require fast Web connections, but market researcher Gartner forecasts there will be 499 milion residential broadband subscribers globally by 2012, up from 323 million at the end of 2007.

Blockbuster said its MediaPoint set-top box, made by broadband device maker 2Wire, allows customers to download high-definition quality movies to their TVs via broadband lines for $1.99 apiece, after an initial $99 for the box and 25 films.

Consumers have 30 days to watch a film once it is downloaded to the set-top box, and must finish watching it within 24 hours of pushing the “play” button. The service, called Blockbuster OnDemand, can be ordered at http://www.blockbuster.com beginning on Tuesday.

Unlike Netflix’s “Watch Instantly” feature, which streams movies to subscribers’ TVs or personal computers, the Blockbuster on-demand service will be open to customers who do not subscribe to its DVD-by-mail service, Blockbuster Online. Blockbuster Chairman and Chief Executive Jim Keyes said the company’s longtime emphasis on new releases draws different consumers than Netflix subscribers, who are directed by its Web site to older catalog titles.

The service is essentially a rebranding and expansion of Blockbuster’s Movielink.com Web site, which offers about 10,000 on-demand movies for download to personal computers. About 2,000 of those titles, such as recent DVD releases “Forgetting Sarah Marshall”, “Sisterhood of the Traveling Pants 2″ and “Get Smart”, can be downloaded to TVs via Blockbuster OnDemand, the company said.

Blockbuster’s also looking into packaging the new service with Blu-Ray DVD players and is considering alliances with video game console makers, but is not ready to disclose the details.

Will my local movie rental shop ever become a “content hub” like Blockbuster CEO Jim Keyes hopes ? Perhaps. But his transformation of the company has certainly improved sales of one item.

Hats. Movie-themed hats. Go ahead and chuckle, but in the name of weekend family fun, I considered buying one after I saw “Indiana Jones and the Kingdom of the Crystal Skull” (I didn’t — more on that later).

Remember, Keyes is the former CEO of 7-Eleven, so he’s very familiar with merchandising. Here’s Keyes at Blockbuster’s annual meeting today in New York, talking about a marketing change the company has made and the Porkpie payoff:

(Indiana Jones writer and producer George) Lucas came to us, and said ‘would you be interested in participating in the theatrical release’, which traditionally we wouldn’t do, because we would wait until the DVDs came out. We said sure.

So Blockbuster did, and is now selling a bundle DVD set of “Indiana Jones” films. And…

…even the fedora. I’m pleased to say, we have sold thousands and thousands of these fedoras at $19 each. It’s not about renting or even retailing DVDs, its about being in the retail entertainment business.

It’s true! I wanted to catch up on the series. Immerse myself in “Indy.” Here’s the problem with my fedora fiasco:

Me: “Do you have a copy of “Indiana Jones and the Raiders of the Lost Ark”?

Well meaning employee at my local Blockbuster: “No.”

Oh well. No flick, No fedora.

(Photo: Harrison Ford at a screening of the “Crystal Skull”, Reuters)

Eyeing the disintegration of its brick and mortar rental business, Blockbuster offered to buy electronics retailer Circuit City for $6 a share, the rental giant revealed on Monday.

But will one plus one equal three? Putting together two struggling companies have rarely been a good idea.

The bid shouldn’t be a surprise, however. For months, Blockbuster CEO James Keyes has aimed to invest more heavily in its stores by adding more merchandise including entertainment electronics while pulling back on competing with online rental service Netflix.

The new Blockbuster sees itself as a one-stop shop for all media entertainment needs, from content to devices. We know of one other company that has pulled this off quite profitably. But the comparison with Apple, which controls every aspect of the supply chain, from device design to consumer pricing at its digital store, doesn’t quite apply here.

(Reuters)

Keep an eye on:

• CBS Interactive to open Menlo Park outpost, amid fears digital revenue won’t offset lost traditional media revenue for years to come. (paidContent) (NYT )
• AOL lands biggest ad deal since creation of Platform A with Verizon. (Reuters)
• Some mysterious guy is snapping up all the copies of “My Wall Street Journal” parody from a Los Angeles newsstand. (NYT )
• Microsoft will probably stick with its own options for Yahoo. (Reuters)
• Antitrust bar is higher in any deal with Yahoo that involves Google. (Reuters )

(Photo: Reuters / Blockbuster CEO James Keyes at the 2007 Reuters Media Summit)