Dish Buys Blockbuster: Now What?

6 Apr, 2011 By: Erik Gruenwedel

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Dish Network’s victorious $320 million ($228 million in cash) bid for bankrupt Blockbuster Inc. left more questions than answers for the former rental icon.

The satellite operator’s billionaire owner, Charlie Ergen, had few suggestions following the final 1:30 a.m. EDT bid about how the two companies would assimilate — even admitting to reporters Blockbuster’s studio contracts were short-term.

Tom Cullen, EVP of sales, marketing and programming with Englewood, Colo.-based Dish, offered perfunctory hope that Blockbuster’s 1,700-plus domestic stores might live to see 2012, hinting the locations would help Dish with “cross-marketing and service-extension opportunities.”

"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,” Cullen said.

Personnel contacted at a Blockbuster in Foothill Ranch, Calif., said that in a corporate memo sent to stores this morning, management appeared delighted Dish had won out over bids from activist investor Carl Icahn (and liquidator Great American Corp.), and a group of hedge funds, dubbed Cobalt Video Holdings.

A $284 million cash bid from South Korean SK Telecom was rejected as insufficient, and an expected bid from liquidators Gordon Brothers and Hilco Merchant Resources never materialized.

“Liquidators do one thing: They liquidate,” the store employee said, adding that additional information would be sent to stores later in the week. “Apparently [management] pulled some strings in order to keep us all in business. If they’re excited with Dish taking over, it’s probably because they are going to keep stores open.”

Analysts aren’t so sure.

Michael Pachter with Wedbush Morgan Securities in Los Angeles believes Dish will shutter most stores, eying the Blockbuster brand as a means to jumpstart its digital distribution of movies in the home.

“My guess is that they value the brand and the streaming technology, and want to use both to offer Internet streaming of movies, but I think that they will hire one of the liquidators who bid on the assets to run a sale for them,” Pachter said in an email.

Brian Sozzi, with Wall Street Strategies in New York, said Dish likely would try and keep Blockbuster in the mind of consumers through select store locations and Blockbuster Express kiosks.

A representative from NCR Corp., which owns and operates Express through a license agreement, was not immediately available for comment.

Craig Moffett, senior analyst with Sanford Bernstein Research in New York, said suggestions Dish would use Blockbuster stores to up its 14.1-million satellite TV subscriber base seems a stretch.

“We find it difficult to imagine Blockbuster’s rapidly shrinking store base becoming a source of significant incremental gross additions for the core Dish pay TV service, both for logistical reasons (employee training, support infrastructure) and the incongruence of the sale process (‘Would you like a satellite dish with your rental?’),” Moffett wrote in a note.

 

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