Buying Blockbuster Thrusts Dish Network Into Streaming Video Fracas

Ailing Rental Chain's Digital Service the 'Most Valuable' Piece for Dish, Analysts Say

By Published on .

Most Popular

Dish Network's winning $320 million bid for the bankrupt Blockbuster represents the latest major milestone in the increasingly competitive video-subscription business, where milestones have already been coming pretty quickly lately.

In the past month alone, Netflix has made plans for its venture in original programming and secured the rights to stream "Mad Men," while first Time Warner Cable then Cablevision have introduced live-streaming TV apps for the iPad.

Dish, whose $320 million bid will translate into a $228 million cash payment after certain adjustments, said buying Blockbuster will offer several advantages. "With its more than 1,700 store locations, a highly recognizable brand and multiple methods of delivery, Blockbuster will complement our existing video offerings while presenting cross-marketing and service extension opportunities for Dish Network," Tom Cullen, Dish's exec VP-sales, marketing and programming, said in a statement. "While Blockbuster's business faces significant challenges, we look forward to working with its employees to re-establish Blockbuster's brand as a leader in video entertainment."

Some analysts seemed to agree. "Blockbuster is still a highly recognizable name brand and Dish may be able to capitalize on that by branding some PPV channels like Blockbuster tried to do in the past," said Wade Holden, an analyst at SNL Kagan. "Also, they can embed Blockbuster's on-demand service app into their set-top boxes for Dish subscribers to access. Dish can also gain a store-front presence in all of Blockbuster's stores."

But the most important part is Blockbuster's streaming video service, said Marci Ryvicker, senior cable and satellite TV analyst for Wells Fargo. "We believe that the most valuable 'extension opportunity' for Dish lies within Blockbuster's digital business, which rents movies to customers on an a la carte basis through the internet similar to Netflix and content rights, which Dish could use to start a robust on-demand library," she said.

Not every analyst, however, was optimistic. Despite a manageable price, Standard & Poor's Equity Research analysts said in a note that they saw minimal synergies and a "likely uphill task to crystallize suggested opportunities for cross-marketing and service extension."

Dish finished 2010 with a total of 14.1 million subscribers, a 2.1% decrease from 2009. DirecTV, by comparison, ended the year with 19.2 million subscribers, a 9% increase from 2009. The multichannel TV industry added a total of 211,000 subscribers in 2010, a 0.2% increase, according to SNL Kagan, despite growing concerns about cord-cutting by consumers who decide they can get TV and movies by other means -- such as streaming web services.

The acquisition could also lead to a new direction in Blockbuster's marketing. Last summer, the company introduced a series of regional ads created by Euro RSCG touting a new feature letting customers receive new releases 28 days earlier than key competitors like Netflix and Redbox. The campaign was praised by BTIG analyst Richard Greenfield as "the best Blockbuster ad in years," but was also regarded as too little, too late to save the financially ailing chain. Dish, which tapped independent agency Victor & Spoils last year to lead creative strategy for many initiatives on its $110 million account, declined to comment on future marketing plans.

In this article: