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Dish Network Corp. (DISH - Analyst Report), the second largest satellite TV operator in the U.S. is planning to close about 300 stores of its subsidiary Blockbuster Inc, retrenching about 3000 employees in the process. Reducing the store count is part of the company’s plan to make the business profitable.

The stores, which will be closed in the coming weeks are either underperforming or almost on the verge of their lease terms. Trimming down the store count will bring the total number of Blockbuster stores in the country to 500 locations. However, the company did not disclose the store locations that will be shutting its operations. 

Dish Network acquired Blockbuster Inc. on May 2, 2011 for $320 million. The acquisition enabled Dish Network to offer several movie streaming services over the Internet, thus efficiently countering the competitive threats from cheap online movie distribution companies like Netflix Inc. (NFLX - Analyst Report), Amazon.com Inc. (AMZN - Analyst Report), Hulu among others.

When Dish acquired Blockbuster, the video rental company had about 1700 stores across the US. But ever since its takeover, the company has been battered by stiff competition from other video streaming companies providing cheaper movie download options and was forced to close down 500 stores last year.

The UK subsidiary of Blockbuster is also struggling amid competition from supermarket chains like Tesco and download sites like Apple Inc.’s (AAPL - Analyst Report) iTunes. The company is set to close 129 stores of its 528 stores and will downsize its employee strength by 760 over the coming weeks. The 129 store closures are in addition to the 31 store closures declared earlier.

Our Take

The video rental company declared that more stores could be closed as part of the company’s strategy to restructure its operations by closing the unprofitable stores. However, we believe that closing the Blockbuster stores won’t allow the company to vend off competition from movie distribution companies. Dish Network needs to come up with a cost-effective and convenient plan of renting DVDs like Redbox, which rents DVD through retail kiosks.  

We currently, maintain a Zacks Rank #3 (Hold) on Dish Network Corp.

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