Court Approves Dish Network Purchase of Blockbuster

Dish Network will keep a “significant number” of Blockbuster store leases in the wake of its successful $320 million bid to buy the bankrupt chain, said Martin Flics, attorney for Dish. U.S. District Bankruptcy Court Judge Burton Lifland, New York, approved the sale Thursday, capping a two-day auction that ended early Wednesday morning. The deal is expected to close by April 21.

Neither Flics nor Blockbuster CEO Jim Keyes would say exactly how many of the 1,717 stores will remain open long term. But Dish will give Blockbuster more “flexibility” in negotiating store leases and help salvage the bricks and mortar business as a launch pad for selling satellite and other services in addition to renting DVDs and Blu-ray, Keyes told reporters. The sale also will give Dish additional time to review the stores before deciding which to retain or close, Keyes said. Blockbuster is in the process of shutting 700 stores as its U.S. workforce shrinks to 16,500 from 20,000, Keyes said.

"There were billions of dollars in revenue for studios and other companies at stake and it was very important to have a strategic bidder” like Dish that would keep some stores, Keyes said. Longer term, Dish will likely close more stores, analysts said. “We believe Dish will be very proactive in scaling back this business,” Kaufman Brothers analyst Todd Mitchell said. “However, we can also understand why Dish might not want to emphasize this point after purchasing an operating company with hundreds of employees.”

Blockbuster and Dish have had “conceptual discussions” about the chain’s future, but “much work” remains be done as video shifts from a “physical” business to digital, Keyes said. While five bidders emerged for Blockbuster, Dish’s offer to continue both online and store operations helped “unlock” the value of the retailer’s multi-channel business, Keyes said. It also helped assuage creditors, who were concerned about losing out in a liquidation, Lifland said.

Whether Blockbuster OnDemand will find a home in Dish satellite receivers or Sling place-shifting products hasn’t been determined and Keyes declined to comment. But the video service will benefit from getting exposure to Dish’s base of 14 million satellite customers, Keyes said. Blockbuster also will continue to expand the Blockbuster Express kiosk-based video rental business, he said. Keyes declined comment on whether the kiosks will be used to sell the Dish satellite service. The sale to Blockbuster will mark a return of the chain’s stores to selling satellite service. Blockbuster sold DirecTV’s service through its stores for several years starting in Q4 2000.

In buying Blockbuster, Dish adds another piece to a strategy of creating a low-cost distribution platform and expand it with “as much capital efficiency as possible,” Mitchell said. Dish will likely start with the Blockbuster over-the-top service and gradually link to the satellite service’s set-top box via broadband connections, “providing each business with scale that neither would have on its own,” Mitchell said. Dish will enable Blockbuster to offer video both in a straight transaction and on a subscription basis, Keyes said.

Dish bested four bidders for Blockbuster including investor Carl Icahn and liquidator Great Plains, SK Telecom, liquidators Gordon Brothers Group/ Hilco Merchant Resources and Cobalt Video, which had the backing of hedge funds led by Monarch Alternative Capital.