Can Blockbuster Dish It Out?

The bidding war for Blockbuster went on well into the night. DISH Network's (Nasdaq: DISH  ) Charles Ergen was the last bidder standing, winning the fading DVD rental chain for $320 million.

Battling a motley crew of bidders that included liquidators, Carl Icahn, creditors, and South Korea's SK Telecom (NYSE: SKM  ) , DISH is the one that made the most sense.

The synergies are fairly obvious. DISH can aggressively market its satellite television service to the aspiring couch potatoes who frequent Blockbuster stores for a quick fix of temporary celluloid. DISH can also cash in on Blockbuster's brand, giving it more entertainment clout than leading satellite television rival DIRECTV (NYSE: DTV  ) .

Through Blockbuster, DISH will be able to reach beyond its 14.1 million existing subscribers.

Obviously, this doesn't change the real problem at Blockbuster. Folks just aren't renting DVDs the way they used to. Will DISH make a material investment in improving the roughly 1,700 stores still standing? Is it good for the money? This is the same DISH that is likely in a nine-figure hole for trampling over TiVo's (Nasdaq: TIVO  ) DVR patents.

I'm not just talking about the $228 million that DISH will have to shell out for Blockbuster after adjustments for available cash and inventory. The chain isn't exactly in "move in" condition. It's a fixer-upper, and that won't come cheap.

Blockbuster stores are unlikely to survive for too much longer if they stick to the current formula. Physical distribution of movies and video games is a dying business. It's true that GameStop (NYSE: GME  ) is running a profitable small-box business, but even that chain's long-term viability is in doubt.

Blockbuster will have to become more of an entertainment retailer if it wants to keep its stores afloat, and that will mean more than renting out Saw X and pitching satellite television subscriptions in a few years.

Good luck, Ergen. You're going to need it.

How would you save Blockbuster if you had the top bid? Share your thoughts in the comment box below.

Motley Fool Options has recommended writing covered calls on GameStop. The Fool owns shares of GameStop. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz can't remember the last time he went into a video store for a rental. He does not own shares in any of the stocks mentioned in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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  • Report this Comment On April 07, 2011, at 7:07 AM, qabb wrote:

    If I was Charlie and owned Dish Network and my Bid for Blockbuster went through. Then I would call up my buddies at Google who I just got done developing "Google TV" for and ask them if they would like to have genius bars in the best and most profitable Blockbuster locations where the Android phones will be spotlighted and retailed. Phones, satelite subscriptions, Google TV and Google technology tutorials all in the best and updated Blockbuster locations. Hell, I might even throw in a coffee bar to live up Jim Keyes dream of having a Coca Cola bar (barf) in house.

    There is also very strong synergy between Motorola, Google, and Blockbuster. So naturally the Droid phones and the Moto Tablet...it's sweet but I can't remember the name would be retailed in these state of the art shops.

    This new company (conglomerate) would become a big headache for both BestBuy and Netflix.

    The Blockbuster locations of choice would require complete new build-outs a--la Sony store, or ok you know where I'm going a-la Apple store.

  • Report this Comment On April 10, 2011, at 4:40 PM, Varchild2008 wrote:

    How about converting Blockbuster into a

    Movie Rental Bar?

    In this way, it will look exactly like Las Vegas bars that have video poker screens or slot machine screens right at the counter where you are ordering drinks.

    Instead of those slot machine screens.... You would have a Google Android powered Tablet displaying a wide range of video rentals you can pick from.

    People tend to spend the 1-2 hours at a bar that is the length of time required to watch a Movie.

    I think even a Coffee House Rental in this fashion also works.

    People still WANT to go to a Coffee House..

    People still WANT to go to a BAR....

    Now they can watch a Movie if they want to when they arrive.

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