Dish Network (
) is going to close another 300 Blockbuster stores in coming weeks.
Once the company's store closure program ends, it will be operating
close to 500 stores. This is substantially below the number of
stores that Blockbuster had during its acquisition by Dish in 2011.
While this will affect the company's revenue growth, it will be
good in terms of profitability and long-term growth of
Dish's closure of stores is also supported by the fact that
renting physical DVDs is a dying business. Netflix (
) pioneered the DVD-by-mail rental business and is also phasing it
out now. The company deliberately raised the prices of its hybrid
plans (DVD+streaming) in 2011 that forced a lot of customers to
drop their current plans and shift to streaming-only subscriptions.
Kiosks such as Redbox are still doing well due to their convenient
locations and competitive prices. However, even Redbox has now
launched a streaming service in partnership with Verizon (
). The landscape of video rental is shifting to streaming and
strategically, Dish would be better off by spending money on
enhancing Blockbuster's streaming service instead of supporting its
See our complete analysis for Dish Network
We estimate that Blockbuster's business constitutes less than
10% to Dish's value. A lot of this is hinged on our expectation
that Dish may be able to maintain margins here.
However, given the continued decline in Blockbuster's physical
stores, the high margin DVD business is shrinking. Streaming has
lower margins and a greater contribution from this business could
weigh on Blockbuster's overall margins. This implies that
Blockbuster will not become a substantial business for Dish in
future, but might help in stemming subscriber loses if Dish can
successfully leverage the brand and improve the streaming content.
Our price estimate for Dish Network stands at
, slightly below the market price.
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