Don’t look now, but you’ll soon be able to pick up a pizza and a DVD at the same time. EntertainmentXpress, yet another name in a growing list of video rental kiosk companies, announced last Thursday that it had signed an agreement with Aurora Huts LLC of Mars, Pennsylvania to install DVD rental kiosks in as many as 155 Pizza Hut restaurants.

To quote Imran Sayeed, VP of Client Services for EntertainmentXpress, "We believe we can bring Pizza Hut the exclusive advantage of integrating with their POS, phone and web ordering systems to deliver ‘pizza and a movie’ to homes, the office or a hotel. This could represent a huge marketing and sales advantage to Pizza Hut while differentiating them from current competitors."

That’s not particularly good news for Blockbuster Entertainment, which continues to struggle as consumers move away from traditional video stores for DVD rentals. An accelerating decline in DVD sales (down 13% in 2009 from 2008) isn’t helping, either.

Blockbuster, which closed 430 stores last year and is on target to shut down another 500 in 2010, is frantically trying to prop up its business by opening Blockbuster Express kiosks and offering movie streaming and download services. They also re-instituted late fees in early March. The company’s stock price is hovering just above a quarter (as in 25 cents) and its market capitalization is slightly over $50M.

Blockbuster did get some good news last week, renewing a distribution agreement with Warner Home Media that will allow it to rent, sell, mail, and download Warner movies the day those movies go on sale. In contrast, Blockbuster’s nemesis Netflix can’t rent WHM titles until 28 days have elapsed after the first date of sale.

While movie rentals are still popular, the delivery system is undergoing a fundamental change, shifting to POS kiosks at grocery stores and drug stores (and now pizza parlors) for optical discs, and streaming and downloads to NeTVs and network-connected peripherals such as DVRs.

Long term, the future doesn’t look good for Blockbuster or its main competitor, Movie Gallery. The latter company re-entered bankruptcy last year and ultimately plans to shut down more than 750 Hollywood Video stores. It’s clear that the American public’s enthusiasm for buying optical media is on the wane.

Taking a contrary view is director James Cameron, who said last week at a media event that Blu-ray presales for the April 22 home video release of Avatar are "strong" and that consumers are "choosing a premium experience in the home" by selecting the BD version. (Ironically, it’s only available in 2D!)

The unprecedented box office take for Avatar and the current ‘hot’ 3D pick Alice in Wonderland is definitely good news for Hollywood, given the decline in revenue from packaged media sales. And DVD rental income is still an important part of the picture, even if more of it will come from kiosks in Giant Markets, Walgreen’s Drugs, and Pizza Hut in the future.

But as broadband speeds increase and video-on-demand services increase in popularity, packaged media will become much less important to consumers, who clearly favor convenience in delivery and aggressive discounting when choosing a movie to watch…two items that Blockbuster is finding increasingly difficult to deliver and stay in business.