While some highlighted the small purchase price and potential benefits, at least one analyst, Sanford C. Bernstein's Craig Moffett, called the deal "strategically puzzling" and questioned whether Blockbuster may become a financial burden for Dish. "The deal still presents meaningful risk in that Blockbuster's business is a rapidly melting ice cube, and it is entirely possible that it becomes a drain on
cash flow going forward," he said.
A bankruptcy judge must still formally approve the deal on Thursday, but Wall Street analysts started discussing this and potential other fallout on Wednesday.
The stocks of acquirors often take hits as investors worry about execution risks and high price tags. However, in early Wednesday trading, Dish shares were slightly higher in a possible sign that investors felt no major such concerns would come into play in this case. But the stock reaction also signaled a lack of conviction that the deal would be a major game changer for Dish.
"We find the idea of gaining access to the Blockbuster titles and streaming rights intriguing" for Dish, Collins Stewart analyst Thomas Eagan said in a report.
He cited at least two possible Dish strategies for the Blockbuster content. One is "using the DVDs and rights to make Dish more competitive (versus, say, DirecTV) by offering free DVD and streaming with a new Dish subscription," Eagan said. The other is "creating another Netflix-type provider."
However, Eagan cautioned that there would be limitations to those strategies.
"The studio deals with Blockbuster are likely to be short-termed and may not be renewed," he said. "The streaming rights are likely shallow in terms of number of titles; and Dish may lack the fulfillment infrastructure needed to distribute the titles."
In announcing it had won an auction for Blockbuster, Dish early on Wednesday cited cross-marketing and service extension opportunities.
Among cross-marketing opportunities, observers also mentioned the possibility to sell Dish subscriptions in video rental stores.
"The most valuable 'extension opportunity' for Dish lies within Blockbuster's digital business, which rents movies to customers on an a la carte basis through the Internet similar to Netflix, and content rights, which Dish could use to start a robust on-demand library," said Wells Fargo analyst Marci Ryvicker. "We view the acquisition as a positive that provides Dish with an Internet content platform and delivery method, a content library and greater optionality at a manageable cost."
She said the deal is another hint that Dish CEO Charlie Ergen "is setting DISH up to provide (some) content via server/Internet versus satellite." Ryvicker last week suggested Dish could look to compete with Netflix.
Analysts also discussed the financial impact of the Blockbuster deal.
"We do not view the acquisition as being significant to Dish's finances," said Ryvicker.
Eagan warned though that there will likely be earnings dilution. "But given Dish's [recent] difficulty at adding subscribers, this could provide a strategic lift," he concluded.
Please Leave A Comment-
Source-THR
Comments