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DISH: Blockbuster deal smacks of desperation

Apr. 11, 2011 9:14 AM ET
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I've been following the Blockbuster death spiral for some time, and my interest was piqued on April 4 by this Fool article: http://bit.ly/hhhCmL

At that point it was not clear how much a bidder would have to pay and how much of their crushing debt load they would have to take on.  Well for $320M Dish Network has bought the stores, the physical media, the brand, and the rest of the debt beyond $87M (part of the 320M number) is gone.  

http://www.latimes.com/business/la-fi-ct-dish-blockbuster-20110407,0,185811...

The question though is what will they do with it?  People, even smart people like Carl Icahn, have been trying to rescue the company for a few years now.  I found this quote to be particularly interesting, from Reuters coverage of the auction:

Icahn has long been an investor in Blockbuster, but resigned from the board last year. He recently wrote in a letter to the Harvard Business Review that Blockbuster was the "worst investment I ever made."

I get that there is some value left to the brand and the name "Blockbuster" which a company like Dish that everyone hates could wring some value out of.  But you've really at that point bought a nice shiny turd sandwich.  The brand itself is sullied and they're losing money hand over fist.  If it wasn't already sullied before the bankrupcty (by late fees etc), the bankruptcy itself sullied it.  

And to me it smacks of desperation from a loser:

"The satellite company could use the help, as it lost 156,000 subscribers in the quarter that ended Dec. 31, leaving it with 14.1 million."

I just don't see why Dish Network needs to exist.  DirecTV is better, they have more exclusive reasons to go with them (such as Sunday Ticket, DirecTV's 101 channel), and Dish is basically irrelevant at this point.  It's exactly when you become irrelevant that you look to buy up some other now-irrelevant player to try to rescue their name - and yours - from the dustbin of history.

So actually, this is not the first time Dish has bought a media company to try to broaden its appeal.  In 2007, it acquired Sling Media, maker of a device that lets users watch programs stored on a DVR via the Internet, for $380 million.  Have you heard the word Slingbox since?

My prediction is the stock falls about 20% over the next year.  Track this prediction - and find out if I was right or wrong - on ProofTrader.

For a more academic look at how the Blockbuster acquisition could help DISH, give this a read:

https://seekingalpha.com/article/262313-what-can-dish-network-do-with-blockb...

And if you like reading old predictions that came true, check out this gem from March 2010 predicting Blockbuster would file for bankruptcy by the end of summer 2010, which they did.

http://www.prooftrader.com/symbol/BLOAQ.PK/468/Polishing-deck-chairs-on-the...

 

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