The long anticipated move brings to an end years of attempts to sell the video rental chain that found few suitors willing to buy into a growth-strapped industry.
Blockbuster is under pressure from new technologies, such as video on demand (search), that bring movies directly to people's living rooms. The chain also faces competition from discount retailers and rivals such as Netflix (NFLX), which rents DVDs over the Web for a flat monthly fee.
Blockbuster is expected to pay a dividend of $5 per share, or $905 million to all shareholders, including Viacom, which owns 81.5 percent of the rental giant.
Blockbuster also said it received a $1.45 billion financing commitment from J.P. Morgan, Citigroup and Credit Suisse First Boston, to be used to fund the dividend and to replace an existing revolving credit facility.
The split-off is expected to be completed by the third quarter.
Shares of Blockbuster fell 20 cents, or 1.36 percent, to $15.18 on the New York Stock Exchange (search).