Charlie Ergen’s satellite-focused DISH Network bid a massive $320 million for bankrupt video rental outfit Blockbuster. And you have to wonder, why? Ergen, never less than savvy, will end up paying about $228 million, say Wall Street sources, who confirm that the strategy makes very sound business sense.
“With its more than 1,700 store locations, a highly recognisable brand and multiple methods of delivery, Blockbuster will complement our existing video offerings while presenting cross-marketing and service extension opportunities for DISH Network,” says Tom Cullen, Dish’s exec VP-sales, marketing and programming, in a statement. “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.”
Of course, Ergen isn’t paying over his millions just for Blockbuster’s retail locations, useful though they may be in providing point-of-sale cross-promotion for DISH Network. “Blockbuster is still a highly recognisable name brand and DISH may be able to capitalise on that by branding some PPV channels like Blockbuster tried to do in the past,” says Wade Holden, an analyst at SNL Kagan, speaking to trade mag Broadcasting & Cable.
And not everyone is convinced the retail sites make much sense. Sanford Bernstein cable and satellite analyst Craig Moffett, was down on the idea: “We find it difficult to imagine Blockbuster’s rapidly shrinking store base becoming a source of significant incremental gross additions for the core DISH Network 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 argued.
There’s also Blockbuster’s ‘streaming rights’ on tens of thousands of titles, helping provide a comprehensive back catalogue of Hollywood’s finest output. Blockbuster’s Netflix-type business already has 1 million users, although lags well behind its famous rival.
Either way, DISH Network needs to pull a few rabbits out of its tired hat. Subs numbers are down. At the end of last year having fallen 2.1 per cent to 14.1 million. Arch-rival DirecTV grew 9 per cent to 19.2 million.