Last April Dish Network Corp. (NASDAQ: DISH) paid $320 million to acquire Blockbuster Inc. out of bankruptcy. Speculation at the time suggested that Dish would enter the streaming video and DVD-by-mail market in a direct challenge to Netflix, Inc. (NASDAQ: NFLX). Dish has scheduled a news conference this afternoon, where the company is expected to announce at least that Dish is entering the streaming video space. Given Netflix’s recent woes, this might be the right time for such an announcement. It might also be the wrong time.

The streaming video market is already crowded with contenders. Amazon.com (NASDAQ: AMZN) offers free streaming to its Amazon Prime customers who pay about $80/year for the free shipping service. Wal-Mart Stores Inc. (NYSE: WMT) offers streaming video through its Vudu subsidiary on an ala carte basis. Best Buy Co. Inc. (NYSE: BBY) also offers its CinemaNow service, which like Wal-Mart’s, requires no subscription. Hulu, which includes the NBCUniversal division of Comcast Corp. (NYSE: CMCSA), News Corp. (NYSE: NWS), and The Walt Disney Co. (NYSE: DIS) in its backers, is another pure-play streaming competitor.

The big issue all these companies, including Netflix, face is the quality and depth of their online catalogs and the cost of acquiring that catalog. Dish/Blockbuster faces the same problem.

Other interesting questions are how the service will be delivered and how it will be priced. Dish could use its satellite capabilities to feed streaming videos to current customers, but chances are that would mean an increase in fees. It’s barely conceivable that a Dish/Blockbuster streaming service would be a free add-on to a Dish subscription.

And Dish, like the other cable companies, is also losing subscribers as the US economy gets weaker. Comcast lost 238,000 subscribers in the second quarter and Dish lost 135,000. Dish claimed more than 14 million subscribers at the end of the second quarter.

Netflix, once the darling of the movie and TV production houses, was almost too successful with its combined streaming/DVD service at less than $10/month. The content producers essentially ganged up on the company, all seeking hefty increases in licensing fees for streaming video. Netflix has taken the rap — and its stock price has taken the beating — for trying to rob its customers, but if the company couldn’t pay the demands from the producers its streaming content would quickly go stale. The technical term for this is being stuck between a rock and hard place.

It was a difficult situation that Netflix made worse by first raising its fees by 60% and then by splitting its business into two pieces. To say that the company faces a public relations disaster and a customer revolt is putting it mildly.

But the fact is, all the other streaming players face the problem. And all have much smaller streaming catalogs than Netflix. They’re all going to have to pay up if they want fresh content. Perhaps Dish/Blockbuster believes it can license content at a low enough price to compete with Netflix’s current $8/month streaming only service.

Does anyone believe that the studios are going to let any of the streaming services set a price that low? Content producers have already administered a pretty good beating to the best streaming service out there; why would they let an upstart get a better deal? It could be that the producers want to fire up their own streaming service so they could hold on to all the profits. But Hulu has not been enough of a success to keep its current owners from trying to sell the business.

Dish/Blockbuster is much less of a threat to Netflix than are the content producers, unless the new kid on the block gets a sweetheart deal on content. That’s just not very likely.

Dish Network’s shares are up about 3% in the first hour of trading this morning, at $26.18 in a 52-week range of $17.95-$32.56. Netflix shares are up about 2.5%, at $131.82 in a 52-week range of $125.02-$304.79.

Paul Ausick

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