Blockbuster may live on after acquisition by Dish Network

Blockbuster, the once popular video rental chain that declared bankruptcy last September, may have been saved from its sinking ship with an 11th hour acquisition by satellite TV provider Dish Network.

Dish placed the winning bid of $320 million during a first round bankruptcy court auction this week, offering $228 million in cash to cover Blockbusters outstanding debts to studios and other lenders who were left empty handed when the chain went under. That repayment, however, is still only pennies on the dollar of what Blockbuster owed to its creditors, leaving experts wondering what plans Dish executives might have to restructure and find profitability with the business.

“It doesn’t make sense to buy a melting ice cube unless you’ve got a plan to increase revenue,” said BDO Seidman David Berliner, who specializes in post-bankruptcy restructuring. Whereas other bidders like Carl Icahn planned to liquidate Blockbusters remaining assets to pay off the debts, Dish could actually be planning to use pieces of the business to help drive new customers to their satellite TV services.

“With its more than 1,700 store locations, a highly recognizable brand and multiple methods of delivery, Blockbuster will complement our existing video offerings while presenting cross-marketing and service extension opportunities for DISH Network,” Dish VP Tom Cullen said in a statement.

The deal is not yet final, however. The terms of the acquisition must be approved by U.S. Bankruptcy Judge Burton Lifland in a hearing on Thursday, and faces an objection by a group of landlords who were owed money by the struggling video business and are demanding to know what will happen to their leases.

Despite the debts amassed by underperforming DVD rental stores, Blockbuster did have a couple of successful products that company executives had recently continued to develop. The company began a video-on-demand (VOD) service last year and had continued to add partners to grow the online offerings. It also launched thousands of Redbox-like Blockbuster Express DVD rental kiosks in strategic locations around the US, and continued to grow that segment of business well into 2011.

If the deal is approved on Thursday, Dish executives will certainly have a challenge on their hands. Time will tell if they can transform Blockbuster into a sustainable brand once again.