Dish Closes Blockbuster Stores As The Rental Business Moves Online

By Trefis Team,

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Dish Network ( DISH ) 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 Blockbuster's business.

Dish's closure of stores is also supported by the fact that renting physical DVDs is a dying business. Netflix ( NFLX ) 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 ( VZ ). 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 under-performing stores.

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 $36.20 , slightly below the market price.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Stocks: DISH , DTV , NFLX , VZ

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