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DISH Closes More Blockbuster Stores

Zacks Equity Research

DISH Network Corp. (DISH), the second largest satellite TV operator in the U.S. after DIRECTV (DTV), plans to shut down another 129 Blockbuster stores in the U.K., thereby taking a pretax charge of $46 million on the latter’s assets.

Few days back, DISH Network planned to close down 300 of its 830 stores. So, winding up another 129 stores will bring the total number of Blockbuster stores in the country to 401.

The stores, which will be closed in the coming weeks are either underperforming or almost on the verge of their lease terms. Consequently, the move will help DISH Network to improve its operating margin going forward. However, the company did not disclose the store locations that will be shutting down its operations.

Dish Network continues to lose subscribers as they faced stiff competition from online movie distribution companies like Netflix Inc. (NFLX), Amazon.com Inc. (AMZN) and Hulu. Therefore, to counter such challenges, the company bought Blockbuster Inc. out of bankruptcy on Apr 26, 2011, for $320 million. The acquisition has not only helped the company to set a new revenue platform but at the same time has also enabled Dish Network to expand its huge collection of movies.

When Dish acquired Blockbuster, the video rental company had about 1700 stores across the US. But ever since its takeover, the company has been facing intense competition from other video streaming companies providing cheaper movie download options and was forced to close down 500 stores last year.

During the last nine months, Blockbuster contributed $817 million revenue, which is just 7.7% of the total revenue generated by DISH Network over the given period. Moreover, revenue contribution from Blockbuster continued to decline over the last three quarters without any improvement.

A continuous loss of subscribers has forced DISH Network to keep its mounting programming costs under control rather than passing it over to its subscribers. So, the best possible option for the company is to trim down unprofitable businesses in order to control cost.

Currently, DISH Network carries a Zacks Rank #3 (Hold).

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