Dish buys Blockbuster in bankruptcy: Internet streaming rights key

Dish Network won a bankruptcy auction for Blockbuster with a bid of $320 million and on the surface the deal sounds a little bit crazy. What's Dish going to do with 1,700 store locations and a brand that’s arguably broken?

Dig a little deeper and the Dish deal makes a little more sense. Once adjustments are made Dish will pay about $228 million in cash for Blockbuster.

In a statement, the Dish line goes like this:

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.

Simply put, Blockbuster is a rehab project. But the real win here may be the Internet streaming rights that Dish will now own. Dish CEO Charlie Ergan has been acquiring wireless spectrum from Echostar and Hughes. Add it up and Dish is plotting a two-way hybrid satellite and wireless network that will feature subscription broadcast TV and on-demand services.

Enter Blockbuster.

Kaufman Bros. analyst Todd Mitchell wrote in a research note:

As part of an acquisition, DISH would presumably get Blockbuster's Internet streaming rights, the Blockbuster brand and its customer lists. Combined with a build-out of the wireless spectrum it has acquired and technology from EchoStar and Hughes, we believe DISH could launch an on demand movie service that would 1) significantly enhance the competitive offering of the DISH Network, and 2) compete on a standalone basis with Netflix and other over-the-top video services.

Dish's set-top boxes already have an Ethernet port so adding streaming content wouldn't be much of a stretch.

Collins Stewart analyst Thomas Eagan also likes the Blockbuster deal, but acknowledges the uncertainties:

We find the idea of gaining access to the Blockbusters titles and streaming rights intriguing. It seems to us that there are (at least) two strategies with the Blockbuster content: 1) using the DVDs and rights to make DISH more competitive (vs. say DTV) by offering free DVD and streaming with a new DISH subscription, or 2) creating another Netflix-type provider. That said, there would be limitations to either strategy: the studio deals with Blockbuster are likely to be short-termed and may not be renewed; the streaming rights are likely shallow, in terms of number of titles; and DISH may lack the fulfillment infrastructure needed to distribute the titles.