NEW YORK (AP) — Dish Network Corp.’s agreement to buy Blockbuster Inc.’s assets out of bankruptcy could keep the movie-rental chain and its blue-and-gold logo from disappearing.
But whether the No. 3 pay TV company can use Blockbuster’s brand, stores and streaming-video capabilities to create services more relevant to the age of Netflix and Hulu remains to be seen.
Dish, headed by billionaire Charles Ergen, won a two-day bankruptcy auction for Blockbuster that stretched into the early hours of Wednesday morning with a bid valued at $228 million in cash.
Dish has so far been mum about specific plans for Blockbuster, but in its announcement, the company highlighted the 1,700 stores that will remain and “multiple methods of delivery.”
Dish spokeswoman Francie Bauer said the Englewood, Colo.-based company would not comment further since the deal must receive bankruptcy court approval.
A hearing for that approval is set for Thursday. Dish expects the deal to close in the second quarter.
Satellite TV providers have been losing new subscribers as cheaper alternatives like Hulu and Netflix become more popular.
Ergen has in past calls with analysts praised Netflix, which offers unlimited streaming video at a monthly price along with a DVD-by-mail service.
Acquiring Blockbuster will make Dish a more viable competitor in streaming video online. It’s doing so at a price easily affordable for Dish, which had nearly $3 billion in cash as of Dec. 31.
Dish also recently picked up satellite provider DBSD North America, which was also reorganizing under bankruptcy protection, for $1 billion.
“Ergen continues to look for distressed assets selling at bargain prices,” said RBC Capital Markets analyst Ryan Vineyard. Blockbuster “could transform Dish into a much more viable online competitor than it is now.”
Dish beat out billionaire investor Carl Icahn and a group of debt holders for the Dallas movie-rental chain, which filed for Chapter 11 bankruptcy protection in September.
Icahn had teamed with a group of liquidators. Analysts say it was likely he would have liquidated the company. Dish has more of a vested interest in keeping Blockbuster a going concern, but analysts are split about whether Dish will keep the stores themselves open.
Some thought Dish would keep at least some stores open.
“In order to get the most from the investment, Dish Network needs to keep the Blockbuster brand top of mind with consumers, and that means in kiosks in drug stores and physical store locations,” Wall Street Strategies analyst Brian Sozzi said.
But others thought a total liquidation might be a possibility.
“Dish has zero retail capability at present, and therefore lacks the scale or synergies to benefit from the operation of Blockbuster retail stores,” Wedbush analyst Michael Pachter said.
Either way, Dish and Ergen, who also chairs former Dish parent EchoStar, is gambling the deal can help reinvent Dish as consumers’ TV and movie-watching habits evolve.
The company, with 14.1 million subscribers, is facing a maturing pay-TV industry as more TV and movie watchers go online or subscribe to services like Hulu and Netflix.
In 2010 new Dish subscribers fell 2 percent, hurt by aggressive discounts by competitors as satellite TV players duke it out for subscribers.
Dish offers video-on-demand and pay-per-view to its satellite TV customers, but its Web service at Dishonline.com is only in testing and is limited compared with Blockbuster’s.
You can’t, for example, watch “Black Swan” on Dishonline.com. But on Blockbuster’s site, the movie is available to either rent or buy online.
Whatever its plans, Dish is taking on a company that is a shadow of its former self.
When Blockbuster filed for bankruptcy protection, it was down to 3,000 stores, less than a third of the peak of 9,100 in 2004. There are about 2,400 currently open with plans to close about 700 more by mid-April.
Blockbuster used to dominate the U.S. movie rental business. But it lost money for years as that business declined because customers shifted to Netflix Inc., video on demand and DVD rental kiosks.
By earlier this year the once-dominant movie-rental chain had been reduced to a punchline. In an episode of “The Simpsons” earlier this year, Lisa asked her mother if they could really return overdue movies by throwing them into “a pit where the Blockbuster used to be.”
But its name still has cachet, said Jean-Pierre Dube, a marketing professor at the University of Chicago.
“It still has a lot of customer recognition, people are aware of the brand,” he said. He added that it will be interesting to see if a well-known brand name can establish itself in a market already dominated by others like Netflix.
“Blockbuster isn’t first. It will have to overcome the fact that it is sort of a late entrant.”
