Is Blockbuster Catching A Second Wind Vs. Netflix?

Sep.26.11 | About: DISH Network (DISH)

Blockbuster Video seemed to be dead and gone, never to been seen or heard from again. Even though Dish Network (NASDAQ:DISH) picked up Blockbuster on the cheap in a bankruptcy auction, Netflix (NASDAQ:NFLX) seemed on an unstoppable pace of domination. That was in April and a lot can happen in only a few short months.

Last month Netflix rocked the world and the markets announcing what equated to a 60% price increase. In the meantime Dish was not standing idle. They were revamping Blockbuster in order to become a viable competitor to Netflix while at the same time figuring out a way to combine satellite, streaming and use the additional bandwidth they had been buying.

Now that it appears that Netflix may be imploding, Blockbuster has begun to apply pressure. How are they doing this? The answer is amazingly simple. Dish and Blockbuster are coming in at the same price point Netflix used to offer...About $10 per month!

If Netflix could not operate profitably at a $10 per month price point, how is Blockbuster supposed to do it? That answer is also simple. Through bundling. The only way you can get the $10 per month price point is to subscribe to Dish Networks satellite television service. The combination allows Dish to use synergies to come in at a price point that had millions flocking to Netflix in the first place. It also may be a deciding factor that brings Dish new subscribers over cable and DirectTV. It is also a valuable combination for consumers, who for only $10 additional per month, can stream their Blockbuster content anywhere. Blockbuster's non-bundled package is more along the lines of Redbox with per-day caosts running from $2 to $3 for the firtst day and $1 for additional days.

So while the Blockbuster of old is not coming back, the sleeker and trimmer version may begin to gain traction, particularly if that consumer is already among the over 14 million Dish subscribers.

Dish traded up 5% on the news. Blockbuster also has competitive prices for non-Dish subscribers. Only time will tell if this second wind of Blockbuster will have a positive effect on Dish and hold Netflix down. At a minimum this news should be enough to make netflix investors look twice.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.