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DISH Proceeds after Winning Bid for Blockbuster

A Blockbuster video store in Central Kentucky shutters, one of many

A Blockbuster franchise is shuttered, one of many. photo:bmm

DALLAS – Last week Dish Network Corp. won the bid for Blockbuster in a bankruptcy auction for the video-rental chain, offering $320.6 million for the video company’s assets.

The Denver Post reported that Dish, a Denver-based satellite-TV firm, plans to use the assets to enhance its subscription offerings and start streaming video and shipping DVDs, in order to compete with Netflix. Analysts say such a move would present a number of challenges for Blockbuster, that it would require renewing studio deals, securing streaming rights and building out the needed infrastructure.

Dish Network does not appear to be intimidated by that suggestion. “With its more than 1,700 store locations, a highly recognizable brand and multiple methods of delivery, Blockbuster will complete our existing video offerings while presenting cross-marketing and service-extension opportunities,” Tom Cullen, Dish’s executive vice president of sales, marketing and programming, said in a statement.

Analyst Thomas Eagan agrees that Dish’s deal for Blockbuster titles and streaming rights appears intriguing, although there are some limitations. He cautioned that Blockbuster’s studio deals are likely short term and may not be renewed. And the company also does not have streaming rights and may lack the infrastructure needed to properly distribute streaming titles. “But given Dish’s difficulty at adding subscribers, this could provide a strategic  lift, Eagan added.

Last week, analysts were split on whether Dish will keep Blockbuster’s remaining stores open.

The satellite television company beat offers from a number of bidders, including one from billionaire Carl Icahn. Others were from a group of hedge funds led by Monarch Alternative Capital and several liquidators. Dish said it expects to pay $228 million in cash after adjusting for items such as available cash and inventory. The deal is expected to close the second quarter.  

After the bid award, Jim Keyes, chairman and chief executive officer of Dallas-based Blockbuster issued a statement. “We are pleased to have reached this important milestone in the ongoing transformation of Blockbuster. The combination of DISH Network with Blockbuster’s multi-channel offering will ultimately provide our combined subscribers and customers the most convenient access to an outstanding entertainment experience.”

Blockbuster rejected over 200 leases for stores previously closing, following its bankruptcy. Now the video company is rejecting another 185 stores. Keyes said that approximately 1,700 will remain. Last September, Blockbuster started reorganizing with 5,600 stores, including 3,300 in the U.S., of which 3,000 units were company owned. He said his company will now help Dish evaluate its store closings.

After the bankruptcy judge tentatively approved Blockbuster’s sale of the business on April 7, the company filed a proposed order yesterday laying out the complex formula for distribution of proceeds. This morning, Bloomberg News reported that if no objections are filed by today’s deadline, the U.S. Bankruptcy Court in New York will hold a hearing on April 14 to decide what form of order should be signed for formal approval of the sale.

Bloomberg said the proposed order “contains formulas specifying how much will be paid to holders of the $630 million in secured notes, who won’t be paid in full, and to creditors with claims arising during the Chapter 11 case, who also won’t be paid in full.”  It explained that any outstanding fees and expense on the loan for the Chapter 11 case will be paid in full, together with $125 million in pre-bankruptcy secured notes that were converted by the post- bankruptcy lending agreement into a secured obligation of the Chapter 11 case. “The amount carved out for professionals in the post- bankruptcy loan agreement will be set aside, along with $12.5 million to cover expenses in winding down the company,” the news report stated.

The purchase deal is not without controversy. One group of landlords is objecting to the sale, saying in court documents that they do not know what Dish intends to do with their leases. Twentieth Century Fox Home Entertainment also stated in court filings that Blockbuster owes them $20 million under contracts. Blockbuster countered saying Fox is owed nothing.

In an email sent to Blue MauMau, Blockbuster corporate communications stated that there are currently 4,400 stores worldwide. Out of the company’s 1,961 stores in the U.S., 243  are franchised, owned by approximately 45 franchisees. In 2005, the ABF (national association representing Blockbuster franchisees) stated in a press release that the Blockbuster system included more than 5,700 U.S. retail locations, of which 1,073 were owned and operated by 105 independent franchisees. The association did not wish to make comment at this time about the Dish acquisition.

Franchisee attorney Andrew Selden said he had not been following the latest developments in the Blockbuster Chapter 11 case, but offered one thought. “The test will come when this or any new owner demonstrates what its attitude is towards franchisees—whether it wants to partner with them, or exploit them. It’s way too soon even to speculate about that,” he said. 

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