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Retailers in Video Pact

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NEW YORK Wal-Mart and Blockbuster said they would begin selling video downloads over the Internet, entering a potentially lucrative business that has thus far been dominated by exclusive online sellers such as Apple iTunes, CinemaNow and Movielink.

In addition, Time Warner chairman and CEO Richard Parsons indicated that as early as next year consumers would be able to download versions of Warner Bros. movies from the Internet that can be burned onto DVDs—most likely on the same day the studio-issued DVD goes on sale in stores.

Speaking Tuesday at the third annual Reuters Media Summit in New York, Parsons said the world's largest media company "will be in a download-to-burn mode in 2007—it will be a part of next year's offerings."

Wal-Mart took the first step by giving consumers who pick up a DVD of the newly released Superman Returns an optional video download for an additional fee: $1.97 for a download playable on portable devices, $2.97 for a download that plays on PCs or laptops and $3.97 for a download playable on both portable devices and computers.

Warner Bros. Home Entertainment Group president Kevin Tsujihara called the arrangement "an unprecedented offering that plays to the strengths of Wal-Mart's successful DVD business while breaking new ground in the nascent digital video download market."

Blockbuster was quick to follow. CEO John Antioco, also speaking at the Reuters Media Summit, said the video rental chain might introduce a movie download service next year, possibly in partnership with a cable or satellite provider.

Traditional brick-and-mortar retailers have eyed the advance of video downloads with trepidation. In meetings with studios, Wal-Mart and Target Corp. have expressed fears that downloading could cut into their DVD businesses. In October, Target sent a letter to studios warning them not to give download services preferential pricing, with company president Gregg Steinhafel saying, "It is apparent that movie downloading is a competitor to DVD sales."

Wal-Mart said it would test additional physical/digital DVD bundles in the coming months and also introduce a beta video download service that would sell movie and TV shows "from a number of top studios and TV networks."