Dish Network’s Blockbuster Buy Is Mostly About Digital

When Dish Network (s DISH) announced it was acquiring the assets of Blockbuster for $320 million in a bankruptcy court auction, speculation was rife about what the satellite TV provider would do with the video store franchise. But now that more details have emerged, it’s becoming clear that Dish Network’s primary interest is in the digital rights Blockbuster holds, not its brick and mortar rental locations.

When the deal was first announced, we thought there might be significant opportunity for Dish to use Blockbuster’s nationwide footprint to help boost sales of its satellite TV service, or to create cross-promotion between the brands. At the time, we wrote:

“With so many locations throughout the U.S., Dish could use free or discounted Blockbuster rentals as a value-add to its pay TV subscribers. It could leverage the movie chain’s physical presence and brand in marketing efforts aimed at Blockbuster customers.”

Surprisingly enough, those plans don’t appear to be in the cards. According to court papers filed with the U.S. Bankruptcy Court in Manhattan (as reported in the Wall Street Journal (s nws) and Dallas Morning News (s ahc)), Dish Network will assume between 500 and 600 leases in which Blockbuster currently has stores. That’s down from the 1,750 locations that Blockbuster currently operates, and more than 4,000 stores that were open in its heyday.

Keeping as few as 600 retail Blockbuster locations open will provide limited opportunity for Dish to cross-sell or cross-promote the two brands. And it goes to show that whatever else Dish’s plans are for Blockbuster, it’s going to attempt to minimize losses that come from the ailing video store business. But it also underlines the strategic importance of Blockbuster’s digital rights in how Dish thinks about the deal going forward.

Blockbuster was never able to turn its online video-on-demand service into a competitive threat to Netflix (s NFLX) or iTunes, (s AAPL) but it still holds rights that Dish could use in expanding its own streaming services. As we noted in our previous piece, those rights, along with broadband spectrum that Dish picked up through the acquisition of DBSD North America, could allow Dish to unveil a streaming offering that doesn’t entirely rely on other operators’ broadband networks.

While the strategy might make sense, its effectiveness will all depend on execution. Dish Network is expected to close on the Blockbuster deal by May 5, but it could happen as early as this Thursday. Once that’s done, it will be able to put some of those assets to work.

Photo courtesy of Flickr user Andrew Levine.