Dish Network buys Blockbuster for $320 Million

Reuters is reporting that Dish Network, the U.S. satellite video service provider, was the winning bidder for Blockbuster in U.S. Bankruptcy Court. Dish Network acquired Blockbuster for $320 million, of which $228 million in cash will be used to pay off the company's creditors (including movie studios) and bondholders. Blockbuster's total outstanding debt at the time of its bankruptcy was over $1 billion.

Dish Network gets a number of valuable assets as part of acquiring Blockbuster:

• Blockbuster has more than 1,700 stores, many of which Dish will likely close. The remainder, however, will likely start selling Dish's satellite service, streaming video service and hardware to consumers. Dish won't have to compete for shelf space with any other vendors. (Update, April 21, 2011: In a Bankruptcy Court filing earlier this week, Dish Network stated that it plans to keep only 572 of Blockbuster's stores open, although that number is subject to change.)
• Dish will become NCR's partner for its Blockbuster-brand video kiosks. To date, NCR/Blockbuster has done a poor job of competing with Redbox for locations, but Dish may give them access to new retail relationships.
• Blockbuster's set-top box and streaming video programs have largely failed to make any impact on Netflix, but Echostar, Dish's sister company, builds set-top boxes and owns Sling Media, the developer of the Slingbox. Echostar could build support for Blockbuster's streaming video service into its set-top boxes, and build new designs that could compete with Apple TV, Google TV, Roku, Boxee and others.
• Blockbuster has distribution deals with many of the major movie studios that gives it access to their DVDs and Blu-Ray titles 28 days before Redbox and Netflix. Dish could leverage those deals in a variety of ways, in a variety of channels.
• The Blockbuster trademark itself is still very valuable, even though it's been damaged by the company's ongoing bankruptcy. Dish has the option of using the Blockbuster trademark, its own trademarks, or a combination of the two, depending on the situation.

In short, for not a lot of money, Dish Network dramatically expanded its potential market opportunity and channels of distribution.

Will the Dish/TiVo case kill Sling Media?

Last week, the U.S. Court of Appeals for the Federal Circuit upheld a previous ruling of contempt of court against Dish Networks in the patent infringement lawsuit brought against it by TiVo. According to this article from Multichannel News, Dish could not only be required to shut down as many as eight million of its DVRs within a month, it may also be prohibited from offering its own DVR in the future. That would mean that Dish would have to license technology from or farm out DVR manufacturing to TiVo or another company whose DVR technology doesn't infringe TiVo's patents.

In late 2007, Echostar, Dish Network's parent, split into two separate companies, with Dish Network providing satellite television services and Echostar maintaining the satellites and building the receivers, DVRs and other equipment. When the split took place, Sling Media was moved into Echostar.

Echostar has been trying to expand its set-top box and DVR customer base beyond Dish Network, but to date the company has had limited success. One of the reasons has undoubtedly been the Dish/TiVo litigation, since anyone using the infringing Echostar DVRs would be subject to the same threat of litigation as Dish. If you're in the set-top box business and you can't offer DVRs, you're stuck in the bargain-basement pricing arena that Chinese manufacturers are dominating.

Sling Media is stuck in the middle. Echostar is no longer focusing on direct-to-consumer sales and instead has retargeted the Sling products for the cable, satellite and IPTV service provider market. If service providers don't want Echostar's set-top boxes, they're unlikely to buy the Sling products either. Given the TV Anywhere initiative and similar services being offered outside North America, the need for Slingboxes and similar devices will inevitably diminish. Sling may be a good idea whose time has come and gone.