In an all-cash deal, Blockbuster has acquired movie download pioneer Movielink. The undisclosed purchase price is estimated to be well below the $50 million number that came up back in February when reports surfaced that the the two companies were negotiating. Blockbuster stock was up 1.5% to $4.23 amidst heavy volume today.

Blockbuster will inherit Movielink’s prized exclusive deals with major studios for digital downloads to rent and own, and will eventually make the service available through the Blockbuster.com web site. Blockbuster reported a loss last quarter, saying that heavy spending on online efforts were to blame. Movielink CEO Jim Ramo waxed optimistic about his new corporate overlords in the release:

With Blockbuster’s ability to leverage its store network, online assets, and marketing expertise, Blockbuster should be able to grow the market for digitally-delivered entertainment content, and we believe that’s good news for consumers and content providers alike.

The movie download market totaled only $111 million last year according to Adams Media Research figures quoted by Reuters.

Movielink, founded in 2002 with $150 million from a group of major Hollywood studios including Paramount, MGM, Sony, Universal and Warner Bros enjoys a great relationship with content producers if not consumers. The service is only available in the United States, only works on Windows systems, and downloads are slathered in Microsoft DRM making them incompatible with popular mobile devices like the iPod.

The company only recently made it possible to burn downloaded movies to DVD. Blockbuster’s retail presence should give a boost to the viability of kiosks where back-catalog titles can be burned on demand, giving customers more selection than the inventory at a typical store allows.

The move also counters Netflix’ efforts to offer video on demand. Blockbuster and Netflix have been locked in competition since Blockbuster introduced a mail-order rental service, and the two companies have managed to drive down the price of DVDs and rentals.