Dish's Blockbuster May Mean Brand's Survival

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    NEWSLETTERS

    TK
    AP
    Customers enter a Blockbuster video store in Dallas.

    Dish Network Corp.'s agreement to buy Blockbuster Inc.'s assets out of bankruptcy could keep the movie-rental chain and its blue-and-gold logo from disappearing.

    But whether the No. 3 pay TV company can use Blockbuster's brand, stores and streaming-video capabilities to create a service more relevant to today's quickly evolving viewer habits remains to be seen.

    Dish, headed by billionaire Charles Ergen, won a two-day auction for Blockbuster that stretched into the early hours of Wednesday morning with a bid valued at $228 million in cash.

    Dish beat out billionaire investor Carl Icahn and a group of debt holders for the Dallas movie-rental chain, which filed for Chapter 11 bankruptcy protection in September.

    Icahn had teamed with a group of liquidators. Analysts say it was likely he would have liquidated the company. Dish has more of a vested interest in keeping Blockbuster a going concern.

    But analysts are split about whether Dish will keep the stores themselves open.

    "Dish has zero retail capability at present, and therefore lacks the scale or synergies to benefit from the operation of Blockbuster retail stores," Wedbush analyst Michael Pachter said.

    He said the company might just want Blockbuster's movie-streaming service and was likely emboldened by the $290 million initial bid from debt holders that started the auction.

    "(Dish) decided that rather than buying the streaming capability and the Blockbuster brand name from another party, it could bid for the entire company and offer the store inventory to another bidder at a later date," he said.

    Pachter thinks that Dish will liquidate stores by the end of the year. But others thought Dish might keep at least some stores open.

    "In order to get the most from the investment, Dish Network needs to keep the Blockbuster brand top of mind with consumers, and that means in kiosks in drug stores and physical store locations," Wall Street Strategies analyst Brian Sozzi said.

    Either way, Dish and Ergen, who also chairs former Dish parent EchoStar, is gambling the deal can help reinvent Dish as consumers' TV and movie-watching habits evolve.

    The company, with 14.1 million subscribers, is facing a maturing pay-TV industry as more TV and movie watchers go online or subscribe to services like Hulu and Netflix.

    In 2010 new Dish subscribers fell 2 percent, hurt by aggressive discounts by competitors as satellite TV players duke it out for subscribers.

    Dish offers an online service at Dishonline.com with 150,000 movies, TV shows, clips and trailers. It also offers video-on-demand and pay-per-view services. It could use Dallas-based Blockbuster's streaming service to expand its online offerings.

    Whatever its plans, Dish is taking on a company that is a shadow of its former self.

    When Blockbuster filed for bankruptcy protection, it was down to 3,000 stores, less than a third of the peak of 9,100 in 2004. There are about 2,400 currently open with plans to close about 700 more by mid-April.

    Blockbuster used to dominate the U.S. movie rental business. But it lost money for years as that business declined because customers shifted to Netflix Inc., video on demand and DVD rental kiosks.

    In a statement about its Blockbuster bid, Dish Executive Vice President Tom Cullen made specific mention of Blockbuster's stores.

    "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," Cullen said.

    But Dish has not yet laid out specific plan for the company. Dish spokeswoman Francie Bauer said the Englewood, Colo.-based company would not comment further since the deal must receive bankruptcy court approval.

    A hearing for that approval is set for Thursday, and Dish expects the deal to close in the second quarter.