Summary:

Now that Dish owns Blockbuster, it will try to build a profitable business from the ailing video rental store. Digital will be a part of Dish’s plans, but CEO Charlie Ergen said it wouldn’t compete with Netflix, in part because Netflix is already too big.

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Now that Dish Network officially owns Blockbuster, the satellite TV provider will soon be hard at work trying to build a profitable business from the ailing video rental store. Digital will no doubt be a part of Dish’s plans, but CEO Charlie Ergen said on Monday’s earnings call that it didn’t expect to pose a direct threat to Netflix.

“I don’t see Blockbuster necessarily being a competitor to the Netflix directly in terms of streaming, because Netflix has a formidable lead and probably insurmountable lead in that business,” Ergen said. But he believes there are opportunities for Blockbuster to provide additional value to studios by offering up an alternative for licensing revenue.

“[Netflix] may not be the best economic model for studios, and I think Blockbuster can indirectly provide competition out there by presenting a better financial model to where the studios want to go,” Ergen said. “If I own the studio and I want to maximize my profit, Blockbuster would be an important element in that I think.”

So what will Dish do with Blockbuster? The company is still, admittedly, trying to figure that out. A lot of its strategic decision making will revolve around the terms through which Hollywood studios will make their content available, according to Ergen. That includes determining how important it is for Hollywood to be renting physical DVDs or if it sees more of an opportunity in digital distribution.

“On Blockbuster, they were running negative EBITDA, and probably still are… but the good news is we have control of the asset now, so we can start making the right long-term decisions there,” Ergen said.

A lot of the decision-making for Dish will also be about piecing together parts that it has recently acquired in a way that makes sense. From this perspective, Ergen referred to Dish’s plans as a “Seinfeld strategy.” That is, a lot of things happen in the first 28 minutes of each Seinfeld episode that might not necessarily make sense. But each episode gets tied together some way in the final minutes of the show.

“I think in terms of where we’re going strategically, you’ll have to just wait and see where it all comes together,” Ergen said. “That’s a little hard to explain it and it’s early in the show, so to speak. Then for you skeptics out there, of course, Seinfeld was a show about nothing, so it could be a strategy about nothing… But I think that everything we do has a purpose and we feel like it ultimately fits together.”

Other comments of note from the earnings call:

  • On licensing TiVo’s Time Warp patent as part of the settlement of its patent dispute announced Monday: “We think that by utilizing the Time Warp patent, we can add some functionality feature to make our product better and compete against some people who may not be using that technology in the future,” Ergen said.
  • On a la carte pricing: “I have always been for a la carte for customers because I always realized… (that) you are going to be able to buy channels a la carte on the Internet. Some of our programming partners make us buy 20 channels from them, but they sell their own channels a la carte, so (it’s) not an enviable position to be in the MVPD business.”
  • On competing without sports content: “Only 15 percent of the people actually watch the sports programming… there is a strategy potentially out there for one video provider not to carry regional sports, and I think there might be some short-term pain, but they (would) probably do pretty well long-term.”

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