By Liana B. Baker

(Reuters) - Dish Network said on Wednesday it will close all 300 or so retail locations of the Blockbuster video rental chain by January, closing a chapter on a brand that failed to compete in the digital world.

Dish plans to lay off as many as 2,800 employees.

Dish, the second-largest U.S. satellite TV company, bought the failed Blockbuster LLC video rental chain in a bankruptcy auction in 2011 for $320 million, a dramatic fall for a brand that at its peak in 2002 had a market value of $5 billion.

Dish had initially planned to keep 1,500 stores open and retain 15,000 employees, or about 90 percent of the outlets at the time after its acquisition. It has been gradually shutting stores and laying off employees.

"This is not an easy decision, yet consumer demand is clearly moving to digital distribution of video entertainment," said Dish's Chief Executive Joe Clayton in a statement.

Online retailers like Amazon.com Inc and online sites such as Apple Inc's iTunes and Netflix have eaten away at Blockbuster's business model for years. Blockbuster was founded in 1985 when video cassette recorders were becoming a fixture in U.S. homes.

Dish has tried to tap the Blockbuster brand by unveiling a new Internet streaming service and a program to rent DVDs by mail, in a bid to challenge Netflix. Dish said will end the DVD by mail service but keep its streaming service "Blockbuster @Home" running.

Dish said it still sees value in the brand for its digital offerings.

When Blockbuster filed for bankruptcy in 2010, it originally proposed to emerge under the control of a group of investors that included activist Investor Carl Icahn and several hedge funds. However, those investors never agreed on a business plan and after poor holiday sales Blockbuster was put up for sale in 2011.

Icahn had wrote in a letter to the Harvard Business Review in 2011 that Blockbuster was the "worst investment I ever made."

(Reporting by Liana B. Baker; Editing by Bernard Orr)