So Why Did Dish Really Buy Blockbuster?

Dish Network (s DISH) said Wednesday that it it will pay around $320 million to buy embattled movie rental chain Blockbuster out of bankruptcy proceedings which have led to significant store closings and layoffs over the past year. The purchase gives Dish some cross-sale opportunities and could even lead to a more robust streaming offering from the satellite provider. But Dish has some major challenges ahead in its plan to make the acquisition pay off in the long run.
The deal includes Dish paying about $320 million for Blockbuster’s assets, with about $228 million of that in cash. According to the Wall Street Journal, Blockbuster creditors will receive about $178.8 million, with the remainder of the money going toward expenses related to the auction and other bankruptcy fees. The deal is expected to close in the second quarter of this year.
But what is Dish actually getting in its acquisition? Unlike some bidders, which would have liquidated the ailing movie chain’s assets, Dish appears ready to try to keep Blockbuster afloat and use its brand and physical locations for cross-sale opportunities, among other things. Dish issued the following statement, attributed to EVP of Sales, Marketing and Programming Tom Cullen:

“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… 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.”

With so many locations throughout the U.S., Dish could use free or discounted Blockbuster rentals as a value-add to its pay TV subscribers. It could leverage the movie chain’s physical presence and brand in marketing efforts aimed at Blockbuster customers. But the more interesting opportunities could lie online: Blockbuster also holds streaming rights to a number of video titles that Dish could use to expand its own streaming offerings, perhaps rolling the Blockbuster licenses into a Dish-branded online VOD offering.
Dish also recently acquired the assets of bankrupt satellite operator DBSD North America. That purchase includes access to broadband spectrum, which it could possibly use to roll out wireless networks for voice or data communication. By doing so, Dish wouldn’t have to rely on the broadband networks of other ISPs to stream to its satellite TV customers.
All that said, Dish will have to move quickly to make those synergies actually work. It wasn’t able to take full advantage of its 2007 purchase of Sling Media, for instance, if only because it took so long before the Sling technology actually started to make it into Dish set-top boxes. Dish won’t have three or four years to make synergies with Blockbuster work.
Part of Blockbuster’s downfall was its inability to compete with smaller, more nimble organizations. That includes Redbox’s (s CSTR) low-cost DVD rental kiosks or the value and convenience of Netflix’s (s NFLX) DVD-by-mail offering, and later its online streaming service. Consumers increasingly are moving to lower-priced video services rather than paying $5 to rent from a store. Having a more innovative leadership group at the helm could help change that, but it remains to be seen how effective Dish will be in turning the firm around.
Photo courtesy of Flickr user Andrew Levine.