Market Insight

Dish strengthens VoD with Blockbuster, Epix deals

April 07, 2011

Erik Brannon Erik Brannon Associate Director – Research and Analysis, Service Providers & Platforms

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After lagging behind DirecTV, Dish Network is determined strengthen its presence in the video-on-demand (VoD) arena by any means necessary. This week has seen two significant announcements: partnership with Epix to license its content on, and a bid for Blockbuster. The partnership with Epix is a TV Everywhere style deal whereby Dish customers would have access to Epix's library of 3,000 titles from Dish's website. Dish also delivered the highest bid to acquire Blockbuster, offering $320m to bring the video chain out of bankruptcy.

The Epix deal will provide movies and television content via Dish Platinum subscribers will receive the full library of 3,000 titles on the website. Similarly, Dish Network customers will be able to login to with their Dish Network credentials. The deal expands the existing deal with Epix by allowing direct access to the Epix library from within a Dish Network portal. Epix, the three-way partnership between Paramount, Lionsgate and MGM studios, will offer new releases such as The Last Airbender, Iron Man 2 and original music and comedy series.

After filing for bankruptcy protection last September with near $900m in debt, Blockbuster represents a sweet deal for Dish Network, which announced 6 April that it would acquire the ailing renter for $320m.  After adjustments for cash and inventory are made, Dish Network will pony up $228m in cash and gain the ability to rent an additional 3,010 movies online.

Dish Network's on-demand strategy has lagged behind rival DirecTV. Both deals, especially the Blockbuster acquisition, will help to bolster Dish Network's on-demand offering, which has been sagging.

From 2004 to present, Dish Network customers have spent less on movie content every year, except for 2006. The decline from $137.0m to an estimated $108.5m in 2011 is the result of a reverse defection of subscribers who, unsatisfied with near VoD, have migrated to either cable or IPTV, which offer a true on-demand offering. IHS Screen Digest believes that as Dish Network integrates both Epix and Blockbuster into its operations, the company will appease more tech-savvy customers, who were likely to defect at the expiration of their promotional rate.

The agreement with Epix is key to the improvement of Dish Network's free on-demand solution for its best customers. The agreement could prove to be advantageous for Epix, which is struggling to capture subscribers. Having been rebuffed by Comcast and Time Warner Cable, Epix will likely seek to make a similar arrangement with its other distribution partners. Competing at the $9.99 per month price point for Epix might be acceptable to customers when its three linear movie channels are coupled with its library of 3,000 titles online.

The deal with Blockbuster is going to bolster Dish Network's transactional on-demand business.  Having launched its IP-VoD solution in August 2010, the addition of Blockbuster's 3,010 movies will dramatically expand the amount of content available for instant streaming. The acquisition of Blockbuster may also allow Dish Network to step away from its current binding to its sling-loaded DVRs. Blockbuster streaming is available on a wide variety of TVs, gaming consoles, and mobile devices.

Without IP-VoD services the company can expect to see transactional movie revenues decline to $66.4m by 2015 ($24.5m nVoD and $$41.9m Push VoD). With the addition of IP-VoD, IHS Screen Digest estimates that the company can add another $64.5m in spending on movies, bringing its 2015 total to $130.9m, $6.1m shy of its best year ever.

Both deals are going to be key for Dish Network, which has lost subscribers in three of the last four quarters. With the addition of both a more robust free on-demand component, and a strong transactional offering, the company is betting that it will be able to offset subscriber losses due to programming fee disputes with the retention and acquisition of tech-savvy on-demand customers.

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