updated 8/8/2007 11:25:28 PM ET 2007-08-09T03:25:28

Video rental chain Blockbuster Inc. said Wednesday it is buying the digital movie-download service Movielink, giving it a stronger online foothold to compete with rival Netflix Inc.

The purchase price was not disclosed.

Blockbuster said it would continue to operate Movielink as a stand-alone service but eventually make elements of it available through Blockbuster’s online-ordering, mail-delivery service.

Blockbuster was in advanced talks to buy Movielink earlier this year but backed off. The Dallas-based chain renewed the talks in July, about the time that it named a new chief executive, James Keyes.

“Many of our stores still say ’Blockbuster Video,”’ Keyes said in an interview. “We’re taking a fresh look at the future of Blockbuster. The popularity of (online rentals) convinced us that customers are ready for more convenient forms of digital delivery that we think Blockbuster can successfully enter.”

The deal gives Blockbuster access to Movielink’s large catalog and, for the first time, gives its customers the ability to download movies instantly.

Netflix, which has more subscribers but isn’t growing as fast, has been offering a download service since early this year.

Both services face limits, however. Netflix’s catalog is mostly older movies, although it recently began offering current television shows such as NBC’s “The Office.”

Movielink “puts us in business,” Keyes said, “but longer-term we must have faster and more effective streaming capability” and consumer-friendly features.

Keyes added that Blockbuster could make additional acquisitions in the download business.

Movielink, based in Santa Monica, Calif., was launched by five studios in 2002, marking the first time that a large supply of recent, popular films was available for rental on the Internet.

The studios hoped to stave off enormous losses from people downloading illegal copies of movies over the Internet. The company is owned equally by Sony Pictures Entertainment, Universal Studios, Paramount Pictures, Metro-Goldwyn-Mayer and Warner Bros.

Movielink has struggled to gain popularity, even as it allowed the purchase of films and signed licensing agreements with all major studios and a large number of independent film companies.

Blockbuster and Movielink were in serious talks in February for a deal with a price that people familiar with the situation said then was less than $50 million in cash and stock.

Keyes said Wednesday that the final terms “are substantially different than our previous discussion,” and that Blockbuster agreed to pay in cash, but he declined to describe the terms beyond that.

Blockbuster considers Movielink “a first step” toward making movie downloads available to computers, televisions and even portable devices such as cell phones, Keyes said.

Blockbuster’s Total Access service, which allows customers to select DVD rentals online and receive them through the mail, has about 3.6 million subscribers. Netflix has 6.7 million subscribers.

Blockbuster added 600,000 subscribers in the second quarter, while Netflix lost 55,000 — its first quarterly decline since the service began in 1999.

Netflix spokesman Steve Swasey said the company lets customers download about 4,000 movie and TV titles directly to a personal computer, and that customers have used the service 5 million times.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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