Dish Network wins Blockbuster bid, business professor says layoffs certain

Dish Network may have paid a pretty penny for Blockbuster, but one business expert said it could come at a huge cost for McKinney's workforce.

The satellite company bought the fledgling video and DVD rental chain in an auction in the U.S. Southern Eastern District of New York Bankruptcy Court on Wednesday, according to a statement released by the company from their corporate offices in Englewood, Colo.

The winning bid of $320 million gives Dish Network all of Blockbuster's assets including all 1,700 store locations, the Dallas corporate offices and the distribution center located on Redbud Boulevard that houses 627 employees, according to a letter sent to the Texas Workforce Commission last February warning of the potential for layoffs.

Last month, a federal judge in the U.S. Southern District of New York bankruptcy court granted Blockbuster the right to put the fledgling company on the auction block for an initial offer of $290 million from a hedge fund, Monarch Alternative Capital, backed by a group of senior bondholders, according to a report in the Wall Street Journal. The judge's decision prevented creditors from breaking up and liquidating the company's assets and properties.

The decision didn't eliminate pink slip worries for employees at the Dallas-based headquarters or the McKinney distribution center. The company filed a warn notice with the Texas Workforce Commission in late February after the group entered into an agreement with another company to acquire their assets, and the purchase could trigger massive layoffs or even a "potential plant closing."

The letter, titled "Blockbuster Inc. Potential Plant Closing or Mass Layoff and WARN Notice" and written by Blockbuster senior vice president of human resources Greg Nichols, stated that Cobalt Video Holdco agreed to purchase some of the assets. The deal with Cobalt ended when the judge granted the company the right to auction itself off and Dish Network won the bidding war.

Michael Davis, an economics and finance professor with Southern Methodist University's Cox School of Business, said even though Cobalt won't be able to take away some of the company's jobs, they should still be worried about the potential for unemployment in the coming weeks.

"I don't know how worried and I don't think anybody knows including the people at Dish," Davis said. "I think there will be some further reductions at Blockbuster."

The potential for a decrease in the number of stores operating under the brand means there could be more room for less employees at the McKinney distribution plant, Davis said.

"We have to expect at least some contraction," he said. "I could be wrong but if you cut back on the number of stores that you operate, you would think that you have to cut back at your distribution center."

The possibility for layoffs started long before Dish Network's purchase agreement, Davis said.

"In this case, I think it was clear that for Blockbuster, the business was changing and Blockbuster could not operate some 3,000 stores doing what they do," Davis said. "I think that just reflects reality."

New contenders in the home entertainment business such as Netflix and Apple's iTunes that lets customers download and watch movies from their homes and even on their computers created a new form of competition for the once great movie rental chain, Davis said.

"The way we receive home entertainment changed and it changed under Blockbuster's feet," he said, "and they didn't move fast enough."

No official plans have been announced in the wake of the merger, but Davis said Dish could help get the video store chain to the place it needed to be to stay competitive with the digital delivery markets such as Netflix.

"Dish believes there are some synergies that they can exploit," Davis said. "They really work two ways. There is the possibility that Dish is going to explore this and use Blockbuster's content and make that available in one form or another to Dish subscribers, but there may be Blockbuster stuff that you can now get over Dish but the emphasis there is 'may be.' We don't know. I don't think Dish knows for sure either. The other possibility, which is I think much more likely to happen, is Dish is going to use Blockbuster's remaining retail outlets to sell Dish."

This deal, however, does not kill Blockbuster's brand name, Davis said. Profitability will eventually determines Blockbuster's future under the new ownership deal, but Dish Network's bid will not lead to total liquidation.

"It's not the end of Blockbuster's brand and that's what was really the significance of what happened in bankruptcy court," he said. "It could have been the end of Blockbuster's brand. If someone else acquired them, they could have liquidated the company and that would have been the end of that."

The layoffs might leave some people out of work, but Dish Network seems interested in keeping the center operating for the time being and Davis said McKinney does have one of the stronger economic and employment communities for those employees

"The area is doing so well right now that they (the city of McKinney) are certainly not a company town," Davis said. "There are lots and lots of other employment opportunity for McKinney and lots of other businesses that operate in the area."

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