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Dish: Blockbuster Store Survival Up to Studios

2 May, 2011 By: Erik Gruenwedel

Executives say studios will determine if Blockbuster goes digital or remains a hybrid business with discs.

Newly announced Blockbuster LLC president Michael Kelly May 2 said the future of more than 1,700 Blockbuster stores depends on whether studios continue to believe in the traditional brick-and-mortar business model.

During a conference call, Kelly and Dish CEO Charlie Ergen said the final number of stores to remain operational is unknown and would be better defined during the next 90 days, after executives sort through outstanding lease agreements and related issues.

“We’re still evaluating them,” Kelly said, adding that about 370 stores were deemed profitable following the acquisition last month.

“From my perspective, a lot depends on the studio presence,” Ergen said. “If that’s what they want, there are a lot of reasons to keep [the stores] open.”

Kelly said the Blockbuster acquisition represents myriad new points of purchase opportunities for consumers. He said Blockbuster By Mail and Blockbuster On Demand offered “tremendous” brands going forward.

“We think there might be some synergies with the Dish business; it could make sense for us,” he said. “We also think there still is business in the physical market. … We’ll have to see what the studious think. … We’re not sure.”

Indeed, consummation of the $320 million Blockbuster acquisition includes Dish paying the major studios about 75% of what monies they are owed, in addition to the studios continuing to ship product cash-on-delivery. Lionsgate has filed a complaint alleging its revenue-sharing deals were not included in the final agreement.

Ergen countered recent comments by Netflix CEO Reed Hastings that a Blockbuster streaming service was forthcoming.

“I don’t see Blockbuster necessarily being a competitor to Netflix directly in terms of streaming because Netflix has a formidable lead and probably insurmountable lead in that business,” he said. “On the other hand for studios it may not be the best economic model for studios and I think Blockbuster can indirectly provide competition out there by presenting a better financial model to where the studios want to go. If I owned a studio and I wanted to maximize my profit, Blockbuster would be an important element in that I think.”

Ergen, who operates his businesses as somewhat of a maverick, likened the Blockbuster acquisition and recent $1 billion purchase of wireless provider DBSD North America Inc. to offensive strategies aimed at mixing up the status quo. Borrowing from popular culture, Ergen characterized the moves as elements in a "Seinfeld" TV episode (“a show about nothing”) or NFL trade that might or might not make sense in the first 28 minutes of the show or even down the road.

“It’s a little hard to explain it this early in the show so to speak, and then for you skeptics out there, of course "Seinfeld" was a show about nothing so it could be a strategy about nothing if you’re skeptical, but I think that everything we do has a purpose and we feel like it ultimately fits together," he said.

Ergen said Dish can hopefully end Blockbuster's negative pre-tax earnings and right the ship. And if not, well, so what appeared to be the CEO's message.

“We’ll try to spend money smartly,” he said. “We bought the company for basically its liquidation value. Not a big risk in terms of total company. Not everything ends up being the fit you thought it would be. It’s upon us to develop those assets.”

Regardless, Ergen said he likely would miss Dish’s next fiscal call due to family vacation commitments. That's just how he rolls.

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