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Dish Bowing Blockbuster Streaming Service?

26 Apr, 2011 By: Erik Gruenwedel

While Dish Network seeks a closing date extension on its $320 million acquisition of Blockbuster and a final decision on the fate of more than 1,100 video store leases, Netflix CEO Reed Hastings is convinced the satellite TV operator will eventually bow a branded streaming service.

With Amazon’s Prime Video streaming service and subscription-based Hulu Plus already launched, Hastings, in an April 25 letter to investors accompanying Netflix fiscal results, said he expects Dish to launch a “substantial” subscription streaming effort under the Blockbuster brand.

Hastings has long welcomed competition in the streaming space, saying the addition of new players validates the market and helps Netflix grow its first-mover subscriber base.

“Our competitive strategy relative to other streaming services is simply to grow as fast as we can, so we can afford more content, more marketing, and more R&D [or research and development] than our competitors,” Hastings wrote.

During a Q&A session, Hastings reiterated his contention that Englewood, Colo.-based Dish would use the Blockbuster brand to further a streaming service into its subscriber homes.

“We really don't know what Dish is up to, but presumably they paid a couple hundred million for Blockbuster, not for its technology but for its brand,” Hastings said. “It’s a well-known brand. It would be consistent to do that if they had plans to launch a service with a fair amount of content and a fair amount of marketing such that it would make sense to pay $300 million to be able to use the Blockbuster brand.”

Of course, what Dish will actually do is anybody’s guess. The company hasn’t divulged what it plans to do with Blockbuster other than vague statements it would support existing stores and personnel in some way.

In an April 26 post, BTIG Research analyst Richard Greenfield said trying to figure out what Dish CEO Charlie Ergen has up his sleeve for Blockbuster (and other properties) is a guessing game, given the executive’s past comments and actions.

Greenfield said Ergen’s recent decisions to drop select sports programming (a major cable/satellite TV selling point) give away access to Starz content, while at the same time outbidding telecommunication companies for wireless spectrum and purchasing past-due Blockbuster, has left many observers baffled.

According to Greenfield, Ergen believes the multichannel video programming and distribution, or MVPD market, is changing. While consumer appetite for home entertainment has never been higher, accessing that content remains in a state of transition.

Citing the CEO’s comments from Dish’s third-quarter 2010 analysts’ call, Greenfield said Ergen believes there is a growing “dynamic” of consumers wanting to watch “an awful lot” of TV and movies without necessarily paying for the access.

This kind of consumer mentality is the lynchpin to Netflix’s $7.99 per month all-you-can-eat streaming service — a reality Greenfield believes could lead Dish to launch some type of hybrid business model linking linear TV with subscription-based on-demand programming.

“With TV Everywhere going nowhere fast (content owners are threatening litigation), we wonder whether Ergen’s goal is to focus on a small group of linear networks that are must-have destinations for consumers and supplement it with a robust on-demand offering that allows anytime/anywhere access to a wide array of programming (albeit without sports),” Greenfield wrote. “We’re not sure, and, to be honest, we’re not even sure Ergen has an exact plan at the moment. [But] we increasingly believe he knows he needs to reorient Dish’s business model, especially while cash flow from his core business is robust, enabling him to redeploy capital to build/re-engineer Dish.”

Dish reports first-quarter results May 2.



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