UPDATE 2-Blockbuster buys movie download service Movielink

(Recasts first paragraph, adds details)

By Sue Zeidler

LOS ANGELES, Aug 8 (Reuters) - U.S. movie rental chain Blockbuster Inc (BBI.N: Quote, Profile, Research, Stock Buzz) said on Wednesday it has bought film download service Movielink for undisclosed terms, giving it a stronger hold in an area where rival Netflix Inc (NFLX.O: Quote, Profile, Research, Stock Buzz) is also staking a claim.

Blockbuster has been in talks to buy Movielink since at least March, when sources familiar with the situation put the price tag at under $50 million in cash and stock. A different source said on Wednesday the terms had changed, that it was an all-cash deal with a substantially lower purchase price, but declined to elaborate further.

While the market for legal movie downloads is still small, Hollywood and the movie rental industry are backing the sector in hopes it will take off and they can avoid the kind of losses the music industry suffered through wide-scale unauthorized downloading of copyrighted content.

The acquisition marks Blockbuster's latest effort to expand beyond the store-based movie-rental market.

Chief Executive Jim Keyes, who recently succeeded John Antioco, told Reuters that Blockbuster will operate Movielink independently and eventually make elements of the service, with more than 3,300 titles available to download, available through blockbuster.com.

In addition to Netflix's 4,000-title movie-streaming service launched this year, Movielink competes with a handful of competitors such as Vongo and CinemaNow offering a fraction of the 70,000 titles available on DVD. Blockbuster also has a stake in CinemaNow.

Movielink was launched in 2002 by major studios including Metro-Goldwyn-Mayer Studios, Viacom Inc.'s (VIA.N: Quote, Profile, Research, Stock Buzz) Paramount Pictures, Sony Corp.'s (6758.T: Quote, Profile, Research, Stock Buzz) Sony Pictures Entertainment, Time Warner Inc.'s (TWX.N: Quote, Profile, Research, Stock Buzz) Warner Bros., and Universal Studios, operated by General Electric Co (GE.N: Quote, Profile, Research, Stock Buzz) unit NBC Universal.