Best Buy's Digital Land Grab

Written by Ryan Lawler

Thursday, July 9. 2009 at 11:55 AM EDT 2 comments

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Don't be fooled by reports that the partnership between Best Buy Co. Inc. and TiVo Inc. (Nasdaq: TIVO) announced today is nothing more than a marketing alliance through which the big box retailer will more heavily promote a dying product in its stores.

The tie-up is actually about Best Buy being able to sell digital content directly to high-definition televisions (HDTVs) and other broadband-connected products -- and now it has all the pieces in place to do so.

As part of the alliance, Best Buy said that it would substantially increase the amount of marketing and merchandising of TiVo digital video recorders, and that the companies would create a co-branded DVR that it would sell in its stores.

But that's not the juicy part. After all, the companies announced that they've entered into this strategic alliance "to transform the digital home entertainment experience" -- and let's face it, you're not going to transform anything by just selling more TiVos.

The interesting part of the deal is the integration of TiVo's user interface into Best Buy's Insignia- and Dynex-branded consumer electronics (CE) devices.

By doing so, the retailer will not only enable TiVo functionality in its HDTVs and Blu-ray disc players [ed. note: because frankly, who cares about buying a TV with a DVR built into it?], but it will be able to sell digital content directly to consumers in their living rooms.

Here's how:

Last month, Best Buy announced a partnership with Sonic Solutions (Nasdaq: SNIC) that will enable the retailer to make thousands of digital video titles available for rent or purchase. The deal gave Best Buy a quick on-ramp to selling digital content online, but it also opens the door for Best Buy to sell digital titles that can be viewed on CinemaNow-enabled devices, like LG Electronics Inc. (London: LGLD; Korea: 6657.KS) Blu-ray players that the retailer has already agreed to promote in its stores.

Meanwhile, Sonic has a standing distribution deal with TiVo to enable paid downloads of its movies on Series 2, Series 3, and TiVo HD DVRs. The implication here is that once the TiVo programming guide lands on Best Buy's CE devices, the retailer will be able to use Sonic's distribution platform to sell CinemaNow titles directly to consumers on their big-screen HDTVs (which they bought at Best Buy!).

Sonic has done this sort of thing before. The company announced a partnership with Blockbuster Inc. (NYSE: BBI) earlier this year to power its digital store. Through its distribution deals with both Blockbuster and TiVo, Sonic ported the Blockbuster OnDemand store to broadband-connected TiVo DVRs just two months after the initial Blockbuster deal was announced.

With the digital content (CinemaNow), digital distribution (Sonic), and programming platform (TiVo) pieces now in place, Best Buy is poised to take a huge step into the digital arena. The deals will put Best Buy into direct competition with connected devices in the living room, including Apple TV, Roku, and Vudu.

While Best Buy may be a little late to the game in terms of getting a connected device and distribution platform to market, none of the companies with connected devices has the retail reach that Best Buy has, with 1,100 stores in the U.S.

And there's one final tidbit that could differentiate Best Buy's future digital offering from other direct-to-TV content plays that are likely to emerge over the coming months: Best Buy and Sonic Solutions/CinemaNow content will leverage Widevine Technologies Inc. 's digital rights management (DRM) technology to secure content across multiple devices.

By doing so, Best Buy could enable a consumer to buy a title once, either through its online store or through a CinemaNow-connected device, and watch it on multiple platforms. That means the consumer could, theoretically, choose to watch the title on an Insignia big-screen TV, download it to a PC, or possibly even take it along with a portable DVD player or other mobile device. There are lots of interesting possibilities here.

Best Buy declined to comment on this story.