By year’s end, distributor Alliance Entertainment may accomplish what Blockbuster and IBM only dreamed about.

Assuming it gets copyright holders’ permission, Alliance hopes to test the downloading of movies onto blank DVDs at a handful of retail locations–a feat Alliance already accomplishes with CDs. Talks with studios are supposed to get underway soon.

Music wholesaler Alliance, which fell on hard times in the late 1990s, has become a one-stop shop for all entertainment products sold online, including video. DVD downloading is part of the new equation.

"All the pieces are there," says Tom Szabo, president of Alliance Entertainment Media and Internet Group and chairman and c.e.o. of subsidiary Digital On-Demand in Carlsbad, Calif. "We always had video in mind" once in-store copying of CDs was underway, he says.

Digital On-Demand has installed its RedDot Network in fewer than two dozen music outlets, but expects to have 500 locations by Christmas. In 2001, downloading should go "to thousands," Szabo predicts.

For DVD, it’s basically a matter of taking out the CD laser writer and substituting the DVD unit, he maintains. "There’s very little additional capital expense," he says.

Blockbuster and IBM had teamed up in the early 1990s to form a downloading venture called New Leaf Entertainment. The partners invested $20 million, but ultimately failed to land a single major CD license.

When the record labels said no, New Leaf withered; video copying, then limited to VHS, went untested. Szabo acquired the patents and Digital On-Demand invested another $35 million before Alliance bought the venture last October and committed $70 million more to RedDot.

The goal of his newly formed DVD engineering team, he says, is to increase in-store copying speed from twice the normal to four times or more. "We’re going through the same process" as did CDs, which now can be copied and packaged with cover graphics and liner notes in 15 minutes.

Even at double time, however, Szabo thinks RedDot DVDs would be invaluable to retailers who want to reduce copy depth and expand breadth. "You’d never be out of stock for more than hour," maintains Szabo.

A sampling of opinions at the recent National Association of Record Merchandisers convention in San Antonio convinced Szabo that the downloading system is what retailers want.

Alliance needs volume to make downloading work. "The only revenue stream we have is when we sell a CD," Szabo says. He claims the in-store systems have boosted CD sales "by an order of magnitude" in the Disney locations that were the first to try RedDot.

All this is heady stuff to Alliance, which only recently emerged from Chapter 11 reorganization under the direction of its new owner, privately held Yucaipa Companies. Video had played a small role in the old Alliance, which had been almost exclusively devoted to music.

Now the wholesaler tracks 40,000 VHS titles and as many on DVD, says Alan Tuchman, president of the Distribution and Fulfillment Services Group. Alliance, based in Coral Springs, Fla., fulfills Web site orders for Blockbuster and Movie Gallery.