Why Dish's Blockbuster Purchase Might Not Have Been Crazy After All

Blockbuster video store chain
Blockbuster video store chain

Dish Network (DISH) was widely ridiculed for snapping up the Blockbuster chain of video rental stores last year, but it may be getting the last laugh now.

The country's second-largest satellite television company has been awarded the right to use a chunk of the airwaves previously designated for satellite-phone transmissions to offer the more popular wireless phone service.

It's a major score for Dish, which invested roughly $3 billion a few years ago for the spectrum that some analysts now value at nearly $12 billion given the FCC's clearance.

Dish can now either seek approval to sell the spectrum or use it itself. If Dish is smart, it will keep it.

Wireless Is Hotter Than Pay TV

It isn't easy getting people to pay a premium for television content these days. The six largest cable and satellite TV providers combined to lose a net 292,000 subscribers during this year's third quarter. Dish closed out the period with 19,000 fewer satellite TV accounts than it had three months earlier.

Wireless, on the other hand, is a booming business. The market is growing as owners of old-school feature phones move up to smartphones that require costly data plans.

Dish can make its mark here, and it will be worth any regulatory hurdles that it has to clear to make it happen.

Bundling is a major part of the game for some of Dish's larger rivals. AT&T (T) and Verizon (VZ) have been growing in premium television by bundling U-verse and FiOS, respective, with their popular wireless services.

Dish has had to turn to third-party providers to create its retention-encouraging bundles. Now it has the power to create one on its own.

Blockbuster Brings Bricks and Mortar

Dish has been closing many of the underperforming Blockbuster stores since last year's acquisition, but the purchase can't be called a failure just yet.

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Dish has remodeled the surviving Blockbuster stores to support its satellite television service. Soon, Dish could begin marketing its newfound wireless power at those Blockbuster sites.

What do smartphones have to do with movies? Well, those phones can stream video. Right?
We're living in interesting times. The Internet has created ways to sidestep escalating cable bills. TV fans have more choices now. Dish has a golden opportunity to diversify into an area that will not only deliver incremental growth but help stem the tide of defections from satellite TV that has plagued the company in recent quarters.

Let's see if Blockbuster can become a retail winner as it transforms itself to fit the new model of streaming video.

Dish it out, Dish.

Motley Fool contributor Rick Aristotle Munarriz has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above.

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