Blog Post

Despite Q1 profit, Blockbuster keeps on shrinking

What used to be the most powerful force in movie distribution has officially been whittled down into marginally profitable adjunct service for a leading satellite TV company.

On Monday, Dish Network (s DISH) reported that its Blockbuster unit had turned a $13.9 million profit for the first quarter on revenue of nearly $334 million.

Blockbuster has turned a narrow profit every quarter since Dish purchased it out of bankruptcy auction for $223 million in early April of last year.

Meanwhile, Dish effectively used its Blockbuster-branded streaming service to help add a whopping 104,000  new subscribers in the first quarter. (The company is offering its new customers free streaming of Blockbuster films as well as rentals through the physical chain for 90 days.)

But after shuttering a third of Blockbuster’s 1,500 brick-and-mortar stores in the first quarter, don’t look for Dish to augment the remaining 1,000 locations now that the red ink has stopped flowing. Englewood, Colo.-based Dish said it plans to close 100 more “underperforming” Blockbuster stores in the second quarter.

In fact, Dish’s strategy for the DVD-rental side of Blockbuster seems similar to the plan put in place by Netflix (s NFLX), which has signaled its intention to stop nurturing its disc-by-mail  business and let it slowly die on the vine.

“Our Blockbuster business, and retail stores in particular, face risks, including, among other things, operational challenges and  increasing competition from video rental kiosk, streaming and mail order businesses that may negatively impact the business, financial condition or results of operations of Blockbuster,” Dish wrote in its Form 10-Q filing to the Securities and Exchange Commission Monday.

For Q1, Dish nearly doubled subscriber growth of 58,000 from the same period in 2011, while revenue was up 11 percent to nearly $3.58 billion. Net income slipped to $360 million from $549 million in Q1 2011, when Dish received cash out of a legal settlement with TiVo.