Market Watch

Dish Working to 'Competitivize' Blockbuster's Rental Business


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Dish Network, which April 6 acquired the assets of number-one US rentailer Blockbuster for around $320m at auction, seems clearly interested in making the most of its new subsidiary - with several moves in May towards protecting, and potentially expanding, what's left of that company's physical rental business while lending synergy to its core satellite network operations. The company announced May 27 that it would begin immediately offering many of its in-store titles for rental at $0.99/day, effectively competing with similarly priced kiosk rentals. It also introduced 'single day pricing', with recent new releases starting at $2.99/day and older new releases at $1.99/day, allowing customers to decide how long to keep a rental title instead of requiring return after a set period (this arrangement also precludes any sort of late fee issues).

Finally, it also launched a promotion, which ran through July 4, whereby customers who rented a new-release movie for $2.99/day could take a $1.99/day movie home free for the first day. Until the expiration they could return that movie in exchange for another $1.99/day movie with the first day free - in other words, a customer could come back to the store each day between late May and July 4 and walk away with a free movie each night for just the price of the original $2.99 rental.

Dish had announced May 19 a promotion offering three months of free access to Blockbuster By Mail to new Dish Network satellite TV subscribers who sign up by August 10. The promotion covers the one-disc-out plan with unlimited exchanges (including in-store) and offers Blu-ray Disc (BD) rentals at no additional charge (Netflix charges subscribers $3/month for its BD rental option).

Analysis
Dish's recent promotional efforts are aimed directly at bringing Blockbuster's physical rental operations into a more competitive position with those companies that have been decimating its business, viz. Netflix and Coinstar/Redbox. With newly comparable pricing and the removal of defined rental periods, the company's in-store value proposition begins to compare favorably with that of kiosks - pitting the ultra convenience of on-the-way rental against massive catalog and no-window (which Dish/Blockbuster proudly trumpets) new-release selection of in-store rental. On the by-mail front, too, Dish's new strategy may pay off; attracting new subscribers to both its own satellite network and its acquired by-mail disc rental program - though it's not likely to cut much into the mostly streaming-fueled growth being seen by Netflix it could well attract away some of that company's die-hard disc-only subscribers who have been put off by the company's intense focus on the digital side of its business.

It seems clear that Dish isn't interested in simply walking away from the physical rental business that makes up the bulk of the $320m in assets it purchased so these moves are important ones for the company as Blockbuster losses continue to mount and more stores are shuttered: Blockbuster's most recent financials (for the period of January 3 through May 1) show a net loss of $193m on revenue of $519m. Another move, the company's demand that NCR cease using the Blockbuster Express brand for its kiosk rental operation (over which NCR filed a lawsuit May 27), may be even more important to the Dish subsidiary's future: assuming the main goal of that challenge was to open the door for direct entry into the burgeoning kiosk business before market-leader Coinstar/Redbox achieves unbeatable dominance. The combination of stores, by-mail and kiosk rental certainly could be synergistic and, while the old Blockbuster was never able to fully leverage that, perhaps Blockbuster under Dish can make something of it.

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