Charlie Ergen, chief executive of Dish Network, is a gambling man.
Before selling satellite dishes out of a truck with his wife, Candy, 30 years ago, he tried his hand at professional blackjack in Las Vegas. Now the outspoken billionaire appears to be placing one of his biggest bets yet: on Internet video.
This month, Dish bought Blockbuster off the auction block for $320 million. The move was as puzzling to industry watchers as it was intriguing. Blockbuster, the brick-and-mortar video chain, had been knocked flat by Internet companies such as Netflix that were quicker to move from DVD rentals to streaming movies online.
It was a tale of fast-shifting fortunes: Blockbuster’s stock was delisted from the New York Stock Exchange this past summer, and it filed for Chapter 11 bankruptcy protection — a steep falloff for a company that was worth $1.6 billion in 2002. Netflix, by contrast, has built a market capitalization of $13 billion — up from $288 million in 2002 — and now streams content to more than 200 devices.
Customers may have moved on from Blockbuster, but Ergen sees promise. He notes that Blockbuster has valuable streaming technology. Still, Dish has emphasized plans to use 500 of the video chain’s 1,700 retail stores to sell its subscriptions and TV set-top boxes.
Industry insiders, however, are calling his bluff. Ergen, chairman of Dish and its sister company, EchoStar, must be dreaming bigger, they say.
“Charlie Ergen has made a lot of money by being contrarian and taking bets,” Liberty Media chief executive Greg Maffei said in an interview. “I think he’s going to take Blockbuster, stabilize the business, move to streaming and push Dish subscriptions overall. The key will be to leverage his businesses.”
Blockbuster has a vast library of movies and shows and the licensing rights to stream them over the Web. That’s valuable content for Dish and EchoStar, which have snapped up airwaves — broadcast and satellite — in recent years that allow the companies to offer broadband Internet access to subscribers.
Dish, with a value of $10.7 billion, has 14 million customers. Its rival DirecTV has 19 million. But Ergen has said he is restless and ready to shift the business to respond to new competition from the Internet. With a war chest of $3 billion, he has made a series of quiet acquisitions, many on the cheap, analysts said.
In 2007, Dish and EchoStar spent $380 million on Sling Media, a video player application for the iPhone and other devices. In 2008, Dish and EchoStar separated, and Dish bought $700 million in mobile Internet airwaves at auction from the Federal Communications Commission.
This year, Dish spent $1 billion on DBSD, a firm with satellite spectrum that can be used for mobile broadband Internet access. EchoStar bought Move Networks, a streaming-video company, and announced its intent to buy Hughes Communications, a satellite firm with spectrum that can also be used for high-speed Internet networks.
A reborn Blockbuster?
And now, Blockbuster. If it is Dish’s hand to play against Netflix, it’s a modest wager compared with investments made by other firms. But the biggest question is whether Ergen can make something of a company that is business school case study for failure.
Observers say Blockbuster could do better under different management. In an article in the Harvard Business Review, former Blockbuster chief executive John Antioco said the business was held back by squabbling between former parent company Viacom’s shareholders and management over the company’s online strategy.
Viacom didn’t want to put its movies and television shows online; it was making more money from theaters, DVD sales and licensing fees with cable companies. While Blockbuster shareholders spent precious time debating the merits of late fees for video rentals and retail store tie-ups with companies such as Barnes & Noble, Netflix was renting videos online and building the technology to stream video over game consoles, laptops and mobile phones. And Redbox was offering cheaper rentals at grocery stores.
“I firmly believe that if our online strategy had not been essentially abandoned, Blockbuster Online would have 10 million subscribers today,” Antioco said, “and we’d be rivaling Netflix for the leadership position in the Internet downloading business.”
Blockbuster has licensing deals with 20th Century Fox, Lionsgate, MGM, Sony Pictures and Universal. Films from those Hollywood studios can stream to Blockbuster customers on smartphones, tablets, laptops and televisions.
“Dish’s move to buy Blockbuster is super-smart because it’s all about getting those licenses for content,” said Markham Erickson, a tech industry lobbyist for the law firm Holch & Erickson. “Dish is a company that realizes you can’t stop moving or you’ll be passed.”
Of course, Dish is in a footrace with Netflix, Hulu and YouTube to get into American homes. And Netflix, for one, seems a step ahead.