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Dish says “We bought Blockbuster” – Market says, “What now?”

There are two approaches to analyzing the news that Dish Network has bought Blockbuster, the “they must have a devious plan” approach and the “what on

By PETER WHITE

Published: 7 April, 2011

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There are two approaches to analyzing the news that Dish Network has bought Blockbuster, the “they must have a devious plan” approach and the “what on earth is it doing” approach.

We are leaning towards fall a form of the latter, in that we think Dish is at least speculating, rather than investing, and that this sits well with the personality of Charlie Ergen, the CEO and largest shareholder.

But it is tempting to fall into the former logic, especially given the recent investments Ergen has undertaken and special problems which Dish has. It is threatened on all fronts, not the least of which is OTT Video, but also it has rivals who are currently doing better than it is.

Dish lives in a world where it has no triple play to sell, where other rivals can sell triple play services, so it is always looking for a broadband partner, which is perhaps why it has bought 700 MHz spectrum and why it has also bought some Mobile Satellite Services spectrum in S-band and why it has debt holds on two other remaining lots of S-Band spectrum in the US. Dish also lives in a world where is has no major sales partner any longer and where its moves into HD were late and labored.

Someone that hasn’t followed Dish’s past might think it was planning to build out its spectrum, but the truth is that Ergen has a free hand to speculate with spectrum and hopes to sell off these spectrum chunks with golden handcuffs attached – bringing his businesses (he also owns the majority of EchoStar) either a triple play to sell, or some satellite services business. He neither has the money to build out such a network, nor does his company have the confidence of the market to raise such monies.

The other conclusion someone might reach is that the 700 MHz spectrum Dish holds could be used with (or without) the MSS spectrum to create a one way delivery mechanism that reaches most of the US and that part of a Netflix class service could be launched using it or even a mobile movie channel, borrowing from the Blockbuster online assets. That’s a hell of a way to take Blockbuster online content and deliver it as a series of broadcasts to US homes, perhaps in conjunction with a cheaply produced, EchoStar designed, set top (or Tablet) which offers push VoD, download to view later. Add an Android Market app for viewing content on phones and tablets and it looks like a winning transformation. It’s this type of speculation that makes the Dish and the EchoStar price rise and fall on deals like this, but recently Dish is only in the market for opportunism, not for building US wide networks. It has already done that with its Dish Network and at best Dish, in our view, is most likely to provide the spectrum and also the guts of Blockbuster, back to someone else to operate, either together in a single deal or separately.

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