DISH Network to buy BlockBuster for $228 million

In a somewhat surprising move, DISH Network said Wednesday that the company had been selected as the winning bidder in BlockBuster's bankruptcy auction, and will acquire BlockBuster's assets for about $228 million after various cost adjustments.

The total bid was $320 million, DISH said. The acquisition is expected to be completed during the second quarter, the companies said, if the bankruptcy court approves the deal.

DISH, a satellite provider, didn't say why it wanted to acquire BlockBuster, with 1,700 physical stores and a streaming service on top of it. But DISH has recently made moves to acquire licenses to content, enhancing its video-on-demand services with a deal with EPIX on Tuesday to bring its movies to DISH's online service, DISHOnline. DISH extended remote streaming to the iPad in December.

Adding a chain of stores and BlockBuster's existing relationships with content providers will help facilitate DISH's transformation into more of a provider of on-demand content than simply a "linear" provider of scheduled broadcasts.

BlockBuster filed for bankruptcy protection last year, but left its stores, mailing service, and kiosks open. Non-U.S. operations, as well as domestic and international franchises were not included in the filing. Blockbuster, however, said it will no longer continue its operations in Argentina, where the company has experienced "continued shortfalls," it said.

"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, 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."

BlockBuster directly competes with the Netflix with its DVD-by-mail service and its streaming offering, although competition with Netflix and with Redbox has severely hurt its revenue and profit margins. BlockBuster currently operates 2,400 stores, but plans to close about 700 more by the middle of this month.

DISH, by contrast, has been profitable, reporting net income of $252 million on revenue of $12.64 billion for the fourth quarter. However, the number of DISH subscribers the company attracted during all of 2010 was relatively flat - just a net gain of 33,000. In all, the company has 14.133 million subscribers, it said.

"And now our business is changing, not only the video is changing to more competition and different forms of video distribution, so we have to be ready to adapt to that," DISH chief executive Charles Ergen said during the company's fourth-quarter conference call. And sometimes, I'd rather be on the early end of trying to adapt to that than the back-end."

In a research note, Zack's said that it saw DISH's bid for BlockBuster as one that would increase its presence as a pay-TV provider. DISH Network recently purchased bankrupt DBSB North America for $1.4 billion.

"DISH Network currently owns a slot of highly demanded 700 MHz wireless frequency," the firm said. "We believe at present management is trying hard to develop DISH Network for the storage of spectrums that can be used to grow a viable pay-TV distribution network. DISH Network continues to position itself as a low price leader in the U.S. pay-TV industry by subsidizing the cost of equipment and installation for increasing the subscriber base. Besides, the company can utilize Blockbuster kiosks to sell more subscriptions."

In February, EchoStar also said it would purchase Hughes Communications in a deal valued at about $2 billion, that promises to add satellite broadband services to the DISH Network bundle.

Dave Shull, senior vice president of Programming for DISH, also explained what DISH was trying to accomplish with its EPIX deal.

"DISH Network is committed to offering not only the best video content available but also the ability to watch it anywhere, which is why our partnership with EPIX is an important step in the expansion of the already robust lineup of popular movies available online and on-demand at DISHOnline.com," he said.

This article, written by Mark Hachman, originally appeared on PCMag.com and is republished on Gear Live with the permission of Ziff Davis, Inc.