Dish Network acquiring Blockbuster for $228M
NEW YORK (AP) – Dish Network said Wednesday that it won the auction for Blockbuster with a bid valued at $228 million in cash.
As of Tuesday, the satellite TV company, billionaire investor Carl Icahn and a group of debt holders were the three remaining bidders for the Dallas movie-rental chain, which filed for Chapter 11 bankruptcy protection in September.
Dish's bid was for $320 million, but the value decreases to $228 million after adjusting for available cash and inventory.
"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.
Blockbuster is already a shadow of its former self. When the chain 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, video-on-demand and DVD rental kiosks.
Dish, based in Englewood, Colo., expects to close the deal during the second quarter. The transaction needs bankruptcy court approval.
Aside from Dish and Icahn, others involved in the bankruptcy court auction were a group of debt holders called Cobalt Video Holdco. Another bidder, SK Telecom, dropped out after two rounds of bids. An expected joint bid by two liquidation firms, Gordon Brothers Group and Hilco Merchant Resources, did not materialize.
There were several rounds of bidding at the U.S. Bankruptcy Court of New York on Tuesday before the courthouse closed for the day. The auction continued at law firm Cadwalader Wickersham & Taft, where the proceeding was closed to the public.
Whether the No. 3 pay-TV company can use Blockbuster's brand, stores and streaming-video capabilities to create a service more relevant to today's quickly evolving viewer habits remains to be seen.
Analysts are split about whether Dish will keep the stores themselves open.
"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.
He said the company might just want Blockbuster's movie-streaming service and was likely emboldened by the $290 million initial bid from debt holders that started the auction.
"[Dish] decided that rather than buying the streaming capability and the Blockbuster brand name from another party, it could bid for the entire company and offer the store inventory to another bidder at a later date," he said.
Pachter thinks that Dish will liquidate stores by the end of the year. But others thought Dish might 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.
Either way, Dish and billionaire head Charles Ergen, who also chairs former Dish parent EchoStar, are 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 an online service at Dishonline.com with 150,000 movies, TV shows, clips and trailers. It also offers video-on-demand and pay-per-view services. It could use Blockbuster's streaming service to expand its online offerings.
Whatever its plans, Dish is taking on a company that is a shadow of its former self.
But Dish has not yet laid out specific plan for the company. Dish spokeswoman Francie Bauer said the company would not comment further since the deal must receive bankruptcy court approval.