I wrote an article "Past, Present, & Future Acquisitions of Wireless and Communications Stocks" back in August which highlighted several of the recent acquisitions and rumors surrounding the communications industry. Looking back at the article I continue to be confident in regard to Dish Networks (DISH) and its purchase of Blockbuster (OTC:BLOAQ). I believe the company is making all the right moves and is positioning itself to control the industry and perhaps become a leader in other areas of service as well.
Blockbuster has garnished a significant amount of publicity over the last month with DISH incorporating the service into its service plan. Back in August I wrote the following in regard to the DISH purchase of Blockbuster.
DISH may have viewed the purchase price as too good to pass up, but plans to let the company revive the stores and operate as an individual business. If DISH has these intentions in mind, then this acquisition was absolutely meaningless, since the company went bankrupt with its business plan. However, if DISH plans to utilize the company with a service plan, then I believe the company will see large returns and profits.
I have been excited ever since I heard the news that DISH was acquiring Blockbuster's assets and even more excited since I learned that it was going to incorporate the service into its service plan for subscribers. DISH recently launched its Blockbuster Movie Pass that will allow the customer to stream more than 3,000 movies to there TV and more than 4,000 to their computer. Subscribers can also choose between 100,000 DVDs, Blu-ray, TV shows, and video games that are available by mail. This service will be available to DISH customers for $10 a month, with new customers receiving 3 months free, or 1 year free for signing a 2 year contract with the 200 channel package. I believe this service places DISH on a higher level than the competition with no other company offering a similar service with the same level of benefits. I believe the acquisition of Blockbuster directly affects two companies: Directv (DTV) and Netflix (NFLX), and indirectly affects several more.
DISH Networks and Directv are in constant battle with each other, as both companies' advertising is geared towards the other. And while both companies offer advantages and disadvantage I believe the new services that DISH provides separate it from Directv, since Directv can not create a service that is competitive with Blockbuster's mail-order program. And although Directv will push its services and try to evolve its technology, DISH will always remain competitive and offer similar services with a Movie Pass option that can not be matched.
It's expensive to stream movies from both DISH and Directv, yet both offer the service for its customers. In fact we can probably go through the list of what each company offers and we will probably find that both companies offer the same service under a different name. Directv has made a splash by offering its NFL Sunday Ticket for free to its new customers. This promotion will most likely have a big impact and result in a strong third quarter for the company. However, DISH offers the same service called the NFL Redzone but has chosen to market this service much less than its Blockbuster movie pass, since the mail-order program will lead to long term gains. After Directv's Sunday ticket is no longer relevant how will the company separate itself from DISH Networks on a consistent basis? Both companies offer some form of NFL package yet Directv decided to focus its marketing on this promotion, while DISH has focused on a product that Directv can not offer. So if you're an investor the question is; how does Directv separate itself from DISH? My answer is that Directv can not separate itself from DISH, yet DISH can separate itself from Directv. This should shift the balance of power between the two companies since mail-order DVD's and a remarkable streaming service is a luxury that the consumer desires.
Netflix experienced an unbelievable amount of success by streaming movies and providing mail-order DVD's for one low price. And now DISH Network's Movie Pass will offer the same service at a cheaper price with more benefits such as Blu-ray, videogames, and more choices. I believe this service will be the emergence of Blockbuster and will help drive the future success of DISH Networks because people forget that Blockbuster was the leader for many years and only went bankrupt because new competitors such as Netflix came along that offered the same service at a much cheaper price. Therefore, I believe this new service from DISH is quite ironic since Blockbuster's inability to compete with Netflix, and others alike, ultimately put it out of business and now Blockbuster will have the opportunity to return the favor.
I don't believe Netflix is capable of competing, long term, and I also believe that DISH finally found a service that Directv cannot imitate. There is no other company that offers a digital TV package, internet TV from Google (GOOG), and a mail-order program in the same way as DISH. The company is directly outperforming all of its competition and creating a service that is beyond the reach of its competitors. The company can compete with Amazon (AMZN) and Apple (AAPL) by offering its Google TV, it competes with Netflix by offering mail-order DVDs, and it competes with Directv by offering the same satellite services. But when you combine all of the services that DISH now offers and the strategic moves it's making for the future, which include Smartv with Intel (INTC), the company is on a different level in which no other service provider can compete.
If we switch gears and look at this company through the eyes of an investor I believe that with a market cap of less than $12 billion it could be the best investment within the market over the next 10 years. Since 2009 the stock has gained over 100%, however it's lost 20% of its value since the market sell-off in late July. The company has made several strategic moves that will result in growth and profit, which have been highlighted. However, the company is also believed to be shopping a wireless company. During an interview in San Francisco Dish Networks CEO Joseph Clayton said:
“We’ll look at partnerships, acquisitions, all of the above,” Clayton said today in an interview in San Francisco. Asked whether that could include buying or partnering with Clearwire or Sprint, he said: “Could be.”
The CEO understands that it would be a project since the company lacks the infrastructure for immediate success in the wireless industry but most believe the technology could easily be obtained. Dish Networks is in a position where it can afford to make acquisitions and build its company with a large amount of cash. Although the company does have a much higher debt-to-assets ratio than I prefer, if it purchases companies that are in financial distress than it can build with acquisitions for a limited cost.
It's a known fact that Sprint (S) needs additional financing especially after deciding to part ways with Clearwire (CLWR). The company is in no position to be making large expensive changes to its service, yet it feels the change is necessary, as most communication companies are switching to LTE technology. Sprint has posted $33 billion in revenue over the last 12 months and is now trading with a market cap of $6.6 billion. Therefore Dish could acquire a large holding in this company, or acquire the entire company, for very little cost.
Dish Networks CEO Joseph Clayton is making a splash in the communications industry and is building DISH into a dominant company. After the acquisition of Blockbuster, the partnership with Google, and the new technology with Intel I believe the company is well positioned for long-term success within this industry, with the likelihood to exceed Directv in market cap over the next 2 years with its exceptional service. But if DISH were to purchase Sprint I believe the company could challenge Verizon (VZ) over the next 5 years. Maybe not in wireless service but in overall value, both AT&T (T) and Verizon are making attempts in the digital TV market. So why can't Dish Networks try its luck in the wireless industry? The only difference would be that Dish would have an established brand, and after seeing the marketing ability of Dish with Blockbuster I believe that the company is fully capable of building a successful wireless segment and competing with the largest companies within the communications industry.
Additional disclosure: As with any investment, due diligence is required. The opinions in this article are not intended to be used to make a particular investment or follow a particular strategy.