DISH Network Corp. (DISH - Free Report) , the second largest satellite-TV operator in the U.S., has submitted bids for the auction of the bankrupt movie and video game retailer Blockbuster Inc. Although the bid size is still unknown, the industry watchers forecasted it to be more than $290 million. The company offers movie on demand service and library of digital video titles. Currently, Blockbuster operates 2,400 kiosks of which the company decides to close 700 by April, 2011.
We believe primary reason for DISH Network to bid for Blockbuster is its video on demand services and brand value. Blockbuster videos can be downloaded on mobile phones, computers, and other pocket digital assistances. DISH Network recently purchased bankrupt DBSB North America for $1.4 billion. This acquisition will provide DISH Network the extremely valuable spectrum of DBSD for both wireless and wireline communications.
DISH Network currently owns a slot of highly demanded 700 MHz wireless frequency. We believe at present management is trying hard to develop DISH Network for the storage of spectrums that can be used to grow a viable pay-TV distribution network.DISH Network continues to position itself as a low price leader in the U.S. pay-TV industry by subsidizing the cost of equipment and installation for increasing the subscriber base. Besides, the company can utilize Blockbuster kiosks to sell more subscriptions.
Furthermore, acquisition of Blockbuster will provide DISH Network adequate bargaining power with movie studios. In the U.S., pay-TV market is highly competitive. During the fourth quarter of 2010, DISH Network lost around 156,000 net subscribers whereas its closest competitor DIRECTV added 289,000 net subscribers. Under this situation, we believe DISH Network will definitely benefit if it can acquire Blockbuster.
We maintain our long-term Neutral recommendation on DISH Network. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.