Dish Network buys Blockbuster chapter 11 bankruptcySure to be on the minds of NAB attendees next week will be this week’s surprise announcement that Dish Network has purchased all of Blockbuster’s assets in a bankruptcy court auction, for $228 million. Apparently, according to Tom Cullen, EVP of sales, marketing and programming, Dish is going to try to breathe new life into Blockbuster’s video rental model that has performed abysmally against both Netflix and Redbox. By snagging Blockbuster’s assets at a bankruptcy fire sale, Dish will inherit more than 1,700 retail store locations, a more recognizable brand name than perhaps its own, and a streaming rights.

But Dish will also inherit Blockbuster’s immediate problems.

First is the expense of all those retail store locations that generated considerably less foot traffic in the last two years as video rental consumption has shifted to online delivery models. Dish is not picking up a marquee store concept like an Apple Store, but rather a tired brand with a lot of extra floor space. Expect Dish to close many of those retail locations as retail is now a backwards looking delivery model for video content.

Second, Dish inherits the DVDbyMail program, established with Comcast that distributes 100,000 heavily discounted Blockbuster titles to Comcast customers through the US Postal Service. It’s a legacy model that also hasn’t proved its worth. So I’m a Comcast subscriber. Does this mean I’m going to get pitched the Dish Network if I return my DVD rental to my neighborhood Blockbuster store? The picture has now changed for Comcast in this agreement.

Third, if Charlie Ergen is looking to compete in the over the top (OTT) video market, buying Blockbuster on the cheap hardly gives him a robust online video delivery network to do so and go up against Netflix any time soon. It does bring streaming rights access to content, and Blockbuster does get new titles before Netflix, but it’s from a brand that’s increasingly viewed by consumers as old school. While it may still work in rural America, in large metropolitan markets, it doesn’t and those retail locations carry a high price tag.

Still, Dish has been making a lot of spectrum land grabs lately so acquiring Blockbuster’s access to streaming rights may point to high bandwidth video streaming down the road. The question will be when?

– Randy Giusto