Dish Network's 'puzzling' Blockbuster Video buy: 4 theories

When the news broke that Dish Network agreed to pay $320 million for the bankrupt movie-rental company Blockbuster, many people's first reaction was: Why? "Blockbuster's business is a rapidly melting ice cube," warns Bernstein Research's Craig Moffett, in a typical assessment of the "strategically puzzling" deal. Still, the No. 2 U.S. satellite TV provider won a late-night auction for Blockbuster and "substantially all" of its assets, beating out at least three other bidders, including investor Carl Icahn and South Korea's SK Telecom. Dish says it won't shut Blockbuster's 1,700 brick-and-mortar stores, at least not yet. So, what will Dish do? Here, four theories:

1. Dish will take on Netflix

Dish's purchase is actually "very clever," says Kaufman Bros. analyst Todd Mitchell, as quoted by Reuters. Using Blockbuster's existing movie-streaming deals, Dish can transform its new purchase "from a retail to a streaming model, so you have basically a Netflix-like offering." Dish would also be smart to "focus on a wider proliferation" of its Redbox-like rental kiosks, says Devindra Hardawar in VentureBeat. Combining on-demand streaming with kiosks and TV service, neither of which Netflix offers, would squeeze Netflix "from multiple sides."

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2. It will use Blockbuster's infrastructure to win satellite customers for Dish

Dish, which is "having a hard time retaining customers," could offer free Blockbuster streaming as a "teaser" to win satellite customers from its larger rival, DirecTV, says Shira Ovide in The Wall Street Journal. And don't forget those 1,700 retail stores, says Georg Szalai in The Hollywood Reporter. They give Dish a place to showcase and "sell Dish subscriptions."

3. Dish will target Blockbuster's existing customers

"Owning physical retail outlets is far outside the scope of competency of a satellite TV provider," says Damien Hoffman in Wall St. Cheat Sheet. But selling satellite service isn't. That's why "the real asset for Dish is Blockbuster’s customer base and contact information lists," which will be useful for "direct and/or in-store marketing." Still, Dish probably would have been better off just buying the lists, not betting that "Blockbuster's 'brand' was the crown jewel to grab on the cheap."

4. It will rehabilitate Blockbuster

Before the Dish deal, I gave Blockbuster a few years "before it vanished altogether from the nation's strip malls," says Harry McCracken in Technologizer. Now, Dish "may give it a new lease on life." It won't be easy resurrecting a retail chain as "battered as Blockbuster," but "the Dish folks seem smart and inventive," and "it shouldn't be hard to run Blockbuster better than the old management did." Keep dreaming, says Linda Sharps in The Stir. Sadly, I don't think "our children will grow up knowing videos sometimes come from stores and not just computers."