Blockbuster Buys Stake in Virgin Interactive Entertainment : Transaction: Irvine-based video game publisher will use expected $30 million from the deal plus infusion by Hasbro to develop new ideas.

Under a deal announced Monday, Orange County’s largest video game publisher could become a major national player in the development of the next generation of interactive video games.

Blockbuster Entertainment Corp., the nation’s largest chain of video stores, said it has bought a 19.9% stake in Virgin Interactive Entertainment in Irvine, a transaction valued at $30 million.

Video game publishers are hot properties now because they are expected to produce the content, or “killer applications,” that will create demand for much-heralded services such as 500-channel interactive TV.

Last year, toy-maker giant Hasbro Inc. bought a 16.2% stake in Virgin Interactive (formerly known as Virgin Games) for $25 million.

Virgin Interactive will use the money from both deals to develop new games, which are becoming complicated and costly as programmers incorporate video, animation, compact disc sound and stories in so-called multimedia games.

Virgin Interactive has a foothold in the emerging multimedia personal computer market, and the market for Nintendo and Sega video games. The price paid by Blockbuster suggests that Virgin Interactive is worth $151 million.

As for Blockbuster, the company “wants to expand into as many areas of entertainment as possible,” said Wally Knief, spokesman for Blockbuster at its Fort Lauderdale, Fla., headquarters. “We want to have some content to put on the information superhighway.”

Analysts say that as technology advances, Blockbuster could find its video rental business radically changed if, as promised, cable TV operators offer video on demand--an application in which someone at home can use a remote control to choose a movie or play a video game from a TV menu.

Blockbuster also has stakes in two film companies that together own more than 20,000 hours of movies, some of which could be used in games.

Virgin Interactive’s 90 titles include “The 7th Guest,” a haunted mansion mystery that is the hottest-selling game in the computer compact disc market, and “Monopoly Deluxe,” “RoboCop vs. Terminator” and “Cool Spot.” Many of the titles are offered for rental in Blockbuster’s 3,593 video outlets nationwide.

Most of the company’s stock is owned by Virgin Group in London, which operates an airline and the Virgin Megastore retail chain of music stores. Blockbuster, in turn, is a part owner of Virgin’s 20-store music and video super-store chain.

A Blockbuster executive prematurely announced the Virgin Interactive-Blockbuster deal at the Consumer Electronics Show in Las Vegas last week. But Virgin Interactive President Martin Alper said at the time that the agreement was not yet final and that Blockbuster’s board was preoccupied with its pending offer to merge with Viacom Inc., the producer of MTV and Nickelodeon.

An industry source said Monday that Virgin Interactive, which employs more than 250 people in Orange County, is expected to sell some of its remaining shares to the public in the near future. A majority of the company’s stock is held by Richard Branson, owner of Virgin Atlantic Airways and founder of Virgin Interactive, and his family trust. Those shares would be sold if there were a public offering, the source said.