Dish and Blockbuster Combined is Worth Watching

Friday morning saw Dish Networks

, the number two satellite provider in the U.S., reveal that its new Blockbuster video service has helped it to add a full 22,000 subscribers in 4Q11, something which boosted profits by 24%. According to the

, DISH ended 2011 with 13.97 million subscribers, after losing 111,000 net subscribers in 3Q11. Profits jumped up to $313 million from $252 million, while revenue rose 13% to $3.63 billion. "By introducing new Blockbuster-branded services, we've begun to turn the tide in subscriber losses while continuing to face increased competitive pressures,'' CEO Joe Clayton said. The success comes on the back of the acquisition of Blockbuster in 2011. Dish followed up that purchase with a streaming service, which it launched in October. The purchase of Blockbuster was questioned at the time, with analysts and consumers alike wondering where the wisdom lies in buying a bankrupt company that had been seen as largely redundant for a couple of years. However, DISH should be commended for making the acquisition work. They have certainly been smart about it. Customers who sign up for Dish services also get three free months of Blockbuster online, which provides access to more than 100,000 movies and TV episodes, in addition to DVDs by mail at a rate of one disc at a time. After that three month period expires, the service costs just $10 per month and it's conveniently added to customers' Dish Network bills. That's beats a comparable offering from Netflix or Hulu. In a research report on Thursday, J.P. Morgan said that DISH Network reported a strong operational and cash flow quarter. The company reversed its declining subs trend while ARPU increased as well. Blockbuster revenue grew but should shrink from here as Dish shuts over 1/3rd of the stores. “Blockbuster revenue was better than expected and was breakeven to net income, but the company expects to close 500 underperforming stores in 1Q12. While DISH continues to mull over how best to strategically employ the asset, they will not tolerate losses with this business and we expect revenue to decline. DISH said that Blockbuster as well as seasonality led to the reduction in churn to 1.54%.” Morgan Stanley said that the first half of '12 will provide investors with important data points on both the fundamental and strategic front for DISH. In March, DISH will launch a revamped product and marketing campaign with the aim of invigorating market share levels while simultaneously completing a major billing system migration. In addition, we expect the FCC to rule on at least part of DISH's spectrum application next month. Deutsche Bank said that, while its forecast has DISH below peer-level core growth rates going forward, its cash generation capability is significantly better than the market appears to be discounting paired with meaningful potential upside from its wireless spectrum. “Shares could also benefit if attempts to reinvigorate marketing prove successful, transparency improves, management commits to a long-term return of capital strategy, or if DISH or its spectrum becomes of interest for a strategic buyer.”