After Blockbuster Buyout, Will Dish Take on Netflix in Streaming Video War?

By Jeff Reeves,

Ask subscribers to Dish Network(DISH) why they choose the satellite television provider and the most common answer is likely to be cost. Dish is cheaper than major cable providers like Comcast (CMCSA) and satellite rival DirecTV (DTV), starting at just $24.99 a month.

But now that Dish has bought the defunct library of one-time movie rental powerhouse Blockbuster, you may see another big reason that consumers will buy into Dish: A digital library of movies they can access over the Internet, akin to Netflix(NFLX)

The purchase of Blockbuster is an important strategic shift for Dish. It means the company is flexing its muscle in an attempt to become a major player.

But more importantly for consumers, it may mean more viewing options and competitive pricing for consumers. Blockbuster's online content library could give Dish Network an opportunity to create an online product to supplement the viewing experience – akin to Netflix offering mail-order DVDs alongside streaming content.

More Reasons for Dish Competitors to Worry

That's just speculation, but it would align with the overall goal of Dish Network to provide a top-notch experience even as it is seen as a low-cost option. In recent years network has expanded HD offerings, on-demand movies and channel selection to make quality a bigger part of the equation.

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And now that Dish Network has snapped up Blockbuster and its content, customers may find many more reasons to like Dish Network than just the smaller monthly bill. That means rivals better take notice in the wake of the $320 million bankruptcy sale.

Of course, it is going to be an uphill battle for Dish. Netflix now has 20 million viewers, and its stock has skyrocketed over 700% in the last five years. DirecTV revenue for 2011 is slated for $26.5 billion – growth of over 50% from fiscal 2006 – and the stock has soared over 180% in the last 5 years. This growth isn't anything to sneeze at.

And by contrast Dish network has sadly been left out of the party recently. Shares and revenue haven't shown much action at all over the last five years. It has been soundly profitable, but Dish has clearly been a secondary player in a secondary television provider market.

Still, the purchase of Blockbuster – and the $1.4 billion purchase of hybrid satellite-landline communications provider DBSD North America earlier this year – means Dish is flexing its muscle. Likely results could be more viewing options and competitive pricing for consumers, and the chance that DISH stock could break out of its slump.

Obviously no one should be counting chickens before they are hatched. The winning bid must still be approved by a bankruptcy court on Thursday, and Dish clearly has a long way to go. Entrenched cable giants like Comcast are digging in, NFLX is the undisputed king of online content and is rolling out original Netflix programming, and satellite leader DirecTV isn't going to give up any of its 19 million-plus subscribers without a fight.

But moving sideways for another five years just isn't an option if Dish Network wants to stay around. The timing and fire-sale price of Blockbuster assets makes the move a smart one, regardless of whether it pays off.

Jeff Reeves is editor of As of this writing, he did not own a position in any of the stocks or funds named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.


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