Dish Network CEO Charlie Ergen’s $320 million winning bid for Blockbuster has observers from Wall Street to Hollywood scratching their heads about his ultimate plans for the bankrupt video-store chain.
Ergen bested billionaire Carl Icahn and a host of other bidders in a court-administered auction for the beleaguered company. Dish, the Englewood, Colo.-based satellite-TV provider with 14 million customers, will pay $228 million in cash for Blockbuster after adjusting for items like inventory and cash.
After winning the bidding war yesterday, Dish suggested that it would preserve the iconic brand and operate the chain’s 1,700 stores largely as a marketing vehicle to attract more customers to its satellite-TV service.
“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,” Tom Cullen, Dish’s head of sales, marketing and programming, said in a statement.
However, analysts expressed doubt that the purchase is a cross-marketing play and believe Ergen’s real goal is to leverage Blockbuster’s brand and relationships with film studios to launch a Netflix-like service.
“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?’]” Bernstein Research analyst Craig Moffet wrote in a note.
Beyond Blockbuster’s 1,700 retail outlets, the company also operates movie-vending kiosks that compete with Coinstar’s Redbox and an online streaming service, Blockbuster On Demand.
Dish shares rose 1 cent yesterday to $24.32, but they are up 24 percent year-to-date.
While theories abound about Ergen’s desire to create a rival to Netflix, the answer could be as simple as a plan to become the dominant entertainment provider for rural communities.
“There is still a tradition of heading to the video store on a Friday night outside of the big cities,” said one source familiar with Blockbuster. “There is still a real business there.”