Once upon a time, Dish Network Corp. had a vision to turn Blockbuster into a solid Netflix competitor. Apparently, Charlie Ergen, Dish's founder and chairman, has given up on that dream.
As history recalls it, Blockbuster filed for Chapter 11 bankruptcy in 2010 and Dish picked up its assets in 2011 for $320 million. At the time, Tom Cullen, executive vice president of sales, marketing and programming for Dish Network, seemed bullish on the prospects.
"With its more than 1,700 store locations, a highly recognizable brand and multiple methods of delivery, Blockbuster will complement our existing video offerings while presenting cross-marketing and service extension opportunities for Dish Network," Cullen said at the time. "While Blockbuster's business faces significant challenges, we look forward to working with its employees to re-establish Blockbuster's brand as a leader in video entertainment."
Was Blockbuster Buy a Mistake?
So far, that hasn't happened. Blockbuster has been plugging away with various strategies, including store closings, a by-mail service, a 99-cents per day in-store movie rental strategy, an on-demand mobile app, and unlimited rentals for $4.99. Nothing has worked.
Even a Netflix faux pas couldn't help Blockbuster. When Netflix stumbled over its pricing strategy in July 2011, Blockbuster was right there to pounce on the opportunity. Blockbuster reached out to angry Netflix customers with a Blockbuster Total Access plan that undercut Netflix. But that didn't pan out for the former video rental giant.
"You make a lot of mistakes in business," Ergen told Bloomberg. "I don't think Blockbuster is going to be a mistake, but it's unclear if that's going to be a transformative decision."
Ergen is not even so sure that Netflix will ultimately be successful with its model, which pays a flat fee for the rights to stream library content. Ergen explained that Netflix was initially successful with that model because the company made money by recruiting millions of customers over the contracted number with the content providers.
"Netflix at first paid for 5 million customers and they got 25 million," Ergen told Bloomberg. "But now people are saying, 'OK, you're going to get 30 million customers, so you're going to pay for 30.' If Netflix can get 40 or 50 million, they'll be fine. But if they don't get to 30, they're probably going to go pfft."
What Happens to Blockbuster?
So, what happens to Blockbuster? We turned to Phil Leigh, a senior analyst at Inside Digital Media, to get his take on the latest news about the once-dominant video rental company. He is not surprised.
"The problem for Blockbuster is that they just can't afford to pay the price for the content that Netflix has. Their subscriber base is just too small," Leigh told us. "I think gradually video rentals will go away to oblivion. There will be a lot of people who don't want to change, so that will probably be 10 years before everything is streaming."