Is Dish taking on Netflix with Blockbuster purchase?

Satellite TV network buys assets of bankrupt video distributor for $321 million

In winning a bankruptcy auction for the assets of former video rental giant Blockbuster, satellite TV provider Dish Networks may be positioning itself to challenge Netflix.

It may be. Dish isn't specifically saying what its plans are for Blockbuster's assets, for which it offered $320.6 million. But the company's press release announcing its winning bid was brimming with vague possibilities:

"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," said Tom Cullen, executive vice president of Sales, Marketing and Programming 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."

"Significant challenges" is one way of putting it. Blockbuster is a mere shell of its former self, the victim of Netflix's success and the advent of pay-per-view movies on cable and satellite. The days of people spending 40 minutes browsing selections in a Blockbuster or any other video store are well behind us. (Yes, there's Redbox, but the DVD kiosk is a niche market.)

Blockbuster once had more than 9,000 locations, and back in 2002 it was worth more than $5 billion -- in other words, more than 15 times the price Dish just paid for its remaining assets. In that regard, Dish got itself a bargain.

(Also see: Analyst upgrade boosts Netflix shares)

But to what end? Forbes blogger Dorothy Pomerantz flagged a humorous comment by Craig Moffett of Bernstein Research:

… 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?”).

The Wall Street Journal reports that "Dish plans to utilize the assets in order to enhance Dish's subscription offerings, leading some company observers to believe it could start streaming video and shipping DVDs."

Investors barely reacted to the news, with shares of Dish (NASDAQ: DISH) gaining 1 cent Wednesday to close at 24.32. Clearly Wall Street doesn't know what to make of Dish's strategy in acquiring Blockbuster's assets.

Shares of Netflix (NASDAQ: NFLX) fell 4.26, or 1.7 percent, to 239.97. But volume was normal, plus Netflix is trading near an all-time high of 248.65. So as skittish as Netflix investors can be, it doesn't appear the Dish news rattled shareholders.

(Disclosure: I recently became a Dish Network subscriber because it costs less than DirecTV. But I barely watch television, so Dish and I have not bonded. Also, for reasons that escape me, I have a Blockbuster app on my Droid 2. I doubt I'll ever use it.)

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