Federal Bankruptcy Court Judge Burton Lifland has approved the sale of financially troubled video rental giant Blockbuster to satellite TV provider The Dish Network for $320 million. Dish plans to have the sale completed by April 25.

 

Blockbuster CEO Jim Keyes told Reuters that he expects that Dish will maintain “a significant number” of Blockbuster brick-and-mortar outlets as well as its kiosks, but some industry analysts such as Home Media’s Thomas K. Arnold believe that the Dish acquisition is all about digital delivery and the competition between Dish, satellite rival Direct TV and Netflix for dominance in a digital future. According to Arnold, Dish paid $320 million for the Blockbuster brand, not the stores. He expects the Dish network to ramp up its Video-on-Demand (VOD) offerings and mount a major marketing campaign under the “Blockbuster” brand.

 

Other analysts think that Dish will keep the Blockbuster store locations and use them to entice more customers to its pay-TV service, which saw a 2% drop in customers in 2010, by offering free or discounted movie rentals to subscribers.

 

But Dish has no experience with retail sales, and the remaining Blockbuster locations are a fraction of the once mighty chain that boasted over 9,000 locations in 2004. The number of locations was down to 3,000 when Blockbuster filed for Chapter 11earlier this year, and is now down to 2,400 with another 700 stores slated to close later this month, which means if Dish does keep the Blockbuster brick-and-mortar locations going, it will be a skeletal chain of just 1,700 outlets.

 

Dish’s digital delivery system dishonline is rudimentary when compared with Direct TV’s and far behind Netflix’s in capability, so acquiring Blockbuster online capability is a big step up. But Blockbuster’s VOD deals with the studios are short term, and Dish may have to pony up on some of Blockbuster’s back debt in order to keep the DVD-street day access for its VOD and EST releases that could give it an advantage over Netflix (the studios are fearful of Netflix’s subscriber-based dominance in streaming and have delayed or withheld many titles from Netflix) and parity with Direct TV’s VOD offerings.

 

Interestingly a suit filed by Paramount aimed at recovering revenue from Blockbuster demonstrates that VOD and Electronic Sell Through (EST) revenues for the month of January for Blockbuster were hardly robust. According to Home Media, Blockbuster owed Paramount less than $100,000 for 18,891 VOD and 1,328 EST transactions during the month, which works out to about 4.5% of the total amount Blockbuster owed Paramount for the period.