Best Buy Will Add Video Download Service to Insignia Products

Best Buy will launch a new video download service by early summer, with plans to add it to private label Insignia flat-panel TVs and Blu-ray players, senior executives with the chain told us Thursday at the Barclays investor conference in New York.

The service, which will use Sonic Solutions’ Roxio CinemaNow platform, will feature “newer, fresher content” than might be found on Netflix and others, said Andrew Lacko, senior director of investor relations. It will focus on pay-per-downloads available day-and-date with DVD and Blu-ray releases, he said. While Best Buy struck an agreement with Netflix to include the streaming service on an Insignia Blu-ray player ($179), the retailer’s offering is part an effort to give customers a choice, Best Buy U.S. Chief Financial Officer Ryan Robinson said. Best Buy’s selling its own video service is no different than its promoting both Napster and Apple iTunes, he said. Best Buy bought Napster in 2008.

"Netflix is more of a monthly service and this will be more of a pay-per-download,” Lacko said. “There will be some overlap. Between the video business model and if we can sync it up with Napster, we'll have a fully functional Best Buy digital entertainment connection to the home."

Best Buy is in the midst of signing content deals with movie studios, Lacko said. Best Buy was expected to launch the service in May (CED March 8 p3). It conducted a beta test of a “Blue Sky” service for three weeks in March with its Rewards Zone Premium Silver members. While Best Buy was satisfied with the results of the test, it’s changing the service’s name due to trademark concerns, Robinson said. The number of titles Best Buy’s service will offer hasn’t been finalized, but will be “competitive” with those from Netflix and others, Robinson said. “The Sonic Solutions relationship is new and we're still working through who is negotiating” with movie studios and “who is making commitments to what,” Lacko said.

Best Buy’s sales of 3D TVs are “still in the early days,” especially since little content is available, Robinson said. Best Buy was the first retailer to sell Panasonic’s 50-inch 3D plasma TV, having received a 30-day exclusive that expired in mid-April. ESPN and DirecTV’s introduction of 3D channels mid-year and the arrival of packaged 3D games and Blu-ray 3D movies will “accelerate” consumer demand for the technology, Robinson said. “It definitely requires assisted selling right now,” Robinson said.

Having opened 75 U.S. Best Buy Mobile standalone stores as part of a joint venture with Carphone Warehouse, Best Buy continues to test the format, Robinson said. Best Buy will open 75-100 new mobile outlets this year, but could boost the pace if the strategy proves successful. The first Best Buy Mobile stores opened in New York in 2007, but the initial outlets suffered from expensive real estate locations and had “moderate success,” Robinson said. Best Buy tested Best Buy Mobile in “power” strip retail centers before landing on regional malls as the best locations, Robinson said. The Best Buy Mobile format in standard Best Buy stores, still needs improvements in “productivity” and sales growth, Robinson said.

Opening 75-100 standalone Best Buy Mobile outlets only has “moderate impact” on the chain’s “desire to achieve double digit market share” in the retail cellphone business, Robinson said. Best Buy Mobile so far has a “mid single digit” share of the U.S. market, Robinson said.

Like Best Buy Mobile, the chain’s namesake stores in China also continue tests. Best Buy has six stores in the Shanghai area in addition to the 158-store Five Star chain it acquired several years ago. Five Star has been profitable and is a more mainstream alternative to the higher end Best Buy stores in China, Robinson said. While the “growth potential” for Best Buy stores is “tremendous,” the chain still needs to “understand what is most important to our customers before we scale that business,” Robinson said.

While Best Buy benefitted financially from Circuit City’s liquidation last year, its ties with vendors deepened as supplier’s sought the chain’s input on product plans, Robinson said. Among the first examples were Best Buy’s Blue Label 2.0 notebook PCs from Dell and Toshiba that were the first to feature Intel’s Wireless Display technology, he said. Wireless Display uses a WiFi network to transmit 720p content between a notebook PC and HDTV using a NetGear Push2TV adapter packaged with the products. The PCs were based on research Best Buy conducted with employees and customers, Robinson said. “Those types of design discussions didn’t happen several years ago” when Circuit City was Best Buy’s chief rival, Robinson said.

Barclays Conference Notebook …

BJ’s Wholesale Club will reserve about $4 million to cover the cost of moving its headquarters to Westborough, Mass., and payments on leases remaining on four buildings at its current Natick, Mass., complex, Chief Financial Officer Frank Forward said. The first of the Natick leases, on a 125,000-square-foot building, expires Jan. 31. BJ’s is expected to move the headquarters and about 1,000 employees to the new facility in December and January, Forward said. BJ’s signed a 15-year lease on the 282,000-square-foot headquarters that carries a “pretty significant reduction” in rent, said Forward. BJ’s starts paying rent on the new headquarters Feb. 1, 2011, the company said in a 10K filed with the SEC. BJ’s also will spend about $60 million in IT projects including an installation of new IBM-based cash registers that’s expected to start with a beta test at 2-3 stores later this year and be fully rolled out over two years, Forward said. The new registers replace 18-20-year-old models. “It’s about underinvesting in the technology area over a number of years and it’s about maintenance,” said Forward, noting that IBM was discontinuing BJ’s current registers. BJ’s also will relaunch its Web site in August with “better functionality” and means for reaching club members with promotions, said Forward. While BJ’s online business has “no way near the penetration or maturation” of Costco’s operation, Web sales grew six percent in 2009, Forward said. Costco increased in February the Rewards Club annual fee to $90 from $80, Forward said. The standard membership fee, which was last raised in 2006, is $45. Rewards members are 5.5 percent of BJ’s 9.4 million total and account for 13 percent of merchandise sales, the chain said.