Dish Buys Blockbuster, But What Does It Get?

By Greg Sushinsky | April 08, 2011 AAA

Satellite TV provider Dish Network (Nasdaq:DISH) successfully bid for the assets of bankrupt movie rental retailer Blockbuster, Inc. Speculation has been that Dish will be moving strongly into streaming online video.

TUTORIAL: Detecting Market Strength

Why Buy?
The question investors ask is why does Dish want the remains of Blockbuster and what will it do with it? Although the speculation has been that Dish wants to get more heavily into streaming video, right now the domain of new juggernaut Netflix (Nasdaq:NFLX), it isn't readily apparent how adding Blockbuster will make Dish an immediate threat.

Charles Ergen, who heads Dish, which was split off from its parent Echo Star (Nasdaq:SATS), recently purchased satellite provider DBSB for $1 billion. The Blockbuster deal is valued at $320 million, $228 million of it in cash. Neither Blockbuster nor Dish have made inroads into the Netflix realm of streaming online video yet, though the thought is that with access to Blockbuster's streaming rights to major studio properties, Dish can expand its presence.

Still, there's the matter of delivery.While traditional cable such as Time Warner Cable (NYSE:TWC) or Comcast (Nasdaq:CMCSA) is delivered over broadband, most satellite subscribers use DSL for the internet, which is widely regarded as not as good.

Pressure on Pay TV
The larger context for TV providers trying to position themselves to deliver streaming video online has been driven by pressures on the satellite and cable industry. While traditional cable companies such as Time Warner Cable or telecoms such as AT & T (NYSE:T) and others were busy battling satellite providers like Dish or DirecTV (NYSE:DTV), Netflix stepped in as a game-changer.

The whole equation on price and delivery is being altered, as availability increases via mobile devices, and with highly diverse content delivery providers such as Amazon.com (Nasdaq:AMZN) along with others are seemingly popping up daily. This has sent the industry into competitive turmoil. The days of the cable monopoly - or cable and satellite duopoly - continuing unabated are ending, so Dish is making moves.

The Death of Blockbuster
Had Carl Icahn's bidding group won, liquidation was likely. Blockbuster still has physical retail locations, roughly 1,700 of them, which Dish will have to deal with now. But other than Blockbuster's once-popular brand in an obsolete industry, the potential synergies and benefits for Dish aren't that easy to glean.

Dish could re-tool the Blockbuster locations to serve as outlets for Dish sales and combine this with the branded offering of Blockbuster's library online, but it's not a natural, seamless fit. As for the technology, there's been mention of Dish utilizing the wireless spectrum it bought from Echo Star.

Is Netflix Worried?
Whether or when Dish gets a major online streaming operation ramped up, there's still the matter of the elephantine Netflix. Netflix has such a head start that other entrants have to run hard for second place. Also, Netflix is committed to a different model. It has honed in on and intends to remain with its $8 value model, different than the pay for movie or rental trade that a Dish-Blockbuster amalgam is likely to pursue. Dish's buy certainly isn't a game-changer - at least yet, not yet - and may not be at all. (While acquisitions can be hostile, these varied mergers are always friendly. See The Wonderful World Of Mergers.)

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