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IBM joins Blockbuster in venture New system to make CDs, videos in stores


Computer technology has turned its hungry gaze on a pair of well-known institutions: the record store and the video shop.

A bold vision of the future of entertainment retailing, announced yesterday by IBM and Blockbuster Entertainment, could do away with sprawling stores, aisles and aisles of offerings, and back rooms loaded with piles of inventory -- be it the latest Michael Jackson recordings, Arnold Schwarzenegger video releases or Nintendo games.

In a few years, even a small-town record shop might offer all the titles of the biggest big-city megastore -- not on hand, but summoned from the digital files of big computers thousands of miles away, traveling as electronic impulses to machines in the store that copy recordings or movies on blank CDs or videocassettes.

IBM and Blockbuster Entertainment Corp. announced a partnership yesterday to jointly pursue this vision. The computer giant and the entertainment retailer will work on developing the new distribution technology for use in-house by Blockbuster, which has nearly 3,500 video and music stores. The technology would also be sold to other retailers.

The concept, analysts say, has several advantages over current methods for putting recorded entertainment into consumers' hands, eyes and ears. For retailers, it could eliminate the costs of shipping and inventory, and avoid the lost sales or rental revenues when popular offerings are out of stock.

"It could well change the economics of retailing for record stores and video rental shops," said Tom Adams, an analyst for Paul Kagan & Associates, a research firm in Carmel, Calif.

For consumers, the concept promises almost unlimited availability and diversity. "If a 7-year-old comes in on a Friday night and wants the latest hot video game, the chances are high now that it's sold out," said David Lundeen, vice president of Blockbuster's technology division. "But with this system, it's never sold out -- you can get another one electronically in a couple of minutes."

Despite its promise, however, the new technology faces some formidable obstacles. The new company formed by IBM and Blockbuster to run the system, Fairway Technology Associates, must negotiate with record companies, movie studies and game makers for the rights to sell their wares.

Sony Music, for one, gave the IBM-Blockbuster venture a chilly reception. In a brief statement yesterday afternoon, Sony said it was not supporting the new system, indicating concerns about electronic distribution of its recordings.

"Commercial copying is illegal, and it's not clear to Sony Music what benefit consumers would derive from in-store copying," the company said, adding that it was "confident" that IBM and Blockbuster "would not engage in commercial piracy."

Some limited previous efforts to market recordings electronically have not met with notable success, encountering resistance from consumers, who have seemed to prefer retailing's sizzle to cold technological efficiency.

"Electronic distribution hasn't worked yet," noted Richard Shaffer of Technologic Partners, a consultant in New York. "Consumers don't just want the music. They want the liner notes, the nice picture of Michael Jackson, all that."

Yet IBM and Blockbuster are convinced they have a more advanced system, more marketing muscle and better timing. "This is a distribution channel with compelling advantages for retailers, content suppliers and consumers," said Robert Carberry, president of Fireworks Partners, the IBM unit handling the partnership with Blockbuster.

The new system, which should be available in the first half of next year, will involve a kiosk in the store, where consumers will order selections by touching a computer screen. The first offerings will be audio compact disks and video games.

Working models of the system copy CD albums in about six minutes. Color laser printers in the kiosk will reproduce the jacket pictures and liner notes -- with a quality that company officials say is indistinguishable from factory production.

At the outset, the price of the electronically distributed CDs will be the same as those shipped from the factory. But that could eventually change, since some $3 to $4 of the cost of a $15 CD now goes for transportation.

The IBM-Blockbuster venture will offer only the same CD albums that the record companies market. It will not give consumers the option of making their own album by picking and choosing songs from various artists, for instance.

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