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Dish's Baffling Blockbuster

8:40 PM -- Dish Network LLC (Nasdaq: DISH) is set to breathe new life into the corpse of Blockbuster Inc. in a $320 million deal, but the general reaction since the announcement has been: What in the wide, wide world of sports is Charlie Ergen up to now? (See Dish's Latest Buy Is a Blockbuster .)

Sanford C. Bernstein & Co. Inc. analyst Craig Moffett, who follows Dish, noted today that investors will "no doubt, squint and see connections." But for him, "the deal is strategically puzzling."

Exhibit 1A is Blockbuster's shrinking store base and revenues, which dropped 17 percent to $3.5 billion for the 12 months ended Oct. 3. Moffett wonders if Blockbuster will become a cash drain on Dish, since the company intends to use stores as a marketing tool for the satellite TV service, despite incongruities in the sales process: "Would you like a satellite dish with your rental?"

He thinks the more intriguing aspect of the deal is Blockbuster's streaming service, which has struggled but could fit in with Dish's Slingbox service. But Moffett doesn't completely buy that either. "The risk is that the synergies here turn out to be more of a soundbite than a strategy," he writes.

Dish, which has been throwing millions at other bankrupt companies to help build a wireless spectrum story, declined to comment on its Blockbuster strategy, noting that the bankruptcy court hasn't approved the deal yet. Dish believes the deal will close sometime in the second quarter. (See Charlie Ergen's Spectrum Grab .)

Here are a couple of other reactions:

  • "Ergen continues to look for distressed assets selling at bargain prices. [Blockbuster] could transform Dish into a much more viable online competitor than it is now," RBC Capital Markets analyst Ryan Vineyard said. Wedbush Morgan Securities analyst Michael Pachter thinks a total liquidation is a possibility.

  • Kaufman Bros. LP analyst Todd Mitchell believes Dish could end up launching a VoD service that could boost Dish's own offerings while using Blockbuster's over-the-top capabilities to compete on a standalone basis against Netflix Inc. (Nasdaq: NFLX).

    — Jeff Baumgartner, Site Editor, Light Reading Cable

  • percosan 12/5/2012 | 5:08:21 PM
    re: Dish's Baffling Blockbuster

    I am thinking ... Streaming Rights. Certainly cheaper than buying Netflix, plus you get a bunch of stores. Some will cry "bull s**t" but I do not think you need to squint too much to see some cool opportunity here.


    -p

    Jeff Baumgartner 12/5/2012 | 5:08:18 PM
    re: Dish's Baffling Blockbuster

    Agree with you there. Helping turn Blockbuster into a more potent force to take on Netflix seems to make the most sense of the strategic options for Dish. And there could be some nice cross over there with the Dish service, in terms of the streaming rights you mention.  I still don't know if it's worth it for Dish to keep the brick and mortar retail end of this going, based on the way that part of the business has been going for Blockbuster. NOt sure Dish has any magic dust to fix that. JB

    David Dines 12/5/2012 | 5:08:17 PM
    re: Dish's Baffling Blockbuster

    I think it could make sense if they close the stores, and open an online streaming service (free to current customers of course). It gets them in the OTT game and provides a service to keep their current customers loyal.  I do not know the details of the deal, but it could be that the library is the only asset they value.  

    Jeff Baumgartner 12/5/2012 | 5:08:14 PM
    re: Dish's Baffling Blockbuster

    Yeah, I think that makes some sense. Dish already offers a bit of a price break on Sling-loaded boxes and the new stand-alone Sling adapter, so doing something special with the Blockbuster streaming library would make it interesting. JB

    Jeff Baumgartner 12/5/2012 | 5:08:13 PM
    re: Dish's Baffling Blockbuster

    Dish got over a nice hurdle today, as the bankruptcy judge approved the deal.  Expectation is that the deal will close in Q2. Can't wait to see what Charlie Ergen has to share about this deal when he come above ground at the next earnings call. JB


     

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