Slow to move with the digital revolution, Blockbuster has filed for Chapter 11 bankruptcy. The move was widely expected as competitors like Netflix continue gaining momentum with streaming television and movie services.
On Thursday, Blockbuster announced an agreement with a group of bondholders that have about 80 percent of the company's stock to recapitalize its balance sheet so it can remake its failing brick-and-mortar business model. If successful, Blockbuster's recapitalization plan would substantially reduce the company's debt from nearly $1 billion to about $100 million or less.
"It's tough to say if Blockbuster can emerge from bankruptcy," said Keith Nissen, principal analyst at In-Stat. "If they can get rid of the debt, a lot of options open up for Blockbuster. Their future may be getting acquired rather than trying to emulate Netflix or Redbox."
Store Closings Likely
Jim Keyes, chairman and CEO of Blockbuster, said the bankruptcy filing is the best path to recapitalizing the company and positioning for the future. He used phrases such as "transform our business model" and "meet the evolving needs of our customers." He also took the opportunity to reinforce Blockbuster's strengths.
"The recapitalized Blockbuster will move forward better able to leverage its strong strategic position, including a well-established brand name, an exceptional library of more than 125,000 titles, and our position as the only operator that provides access across multiple delivery channels -- stores, kiosks, by mail, and digital," Keyes said.
Blockbuster's operations will remain opening during the voluntary bankruptcy process, and the bankruptcy doesn't include franchises or international stores. But there may be fewer Blockbuster brick-and-mortar facilities after the reorganization. The company said it's evaluating its 3,000 U.S. stores with a "view toward enhancing overall profitability."
It's not clear how Blockbuster aims to compete with Netflix, Apple's iTunes Store, Redbox, Hulu and the growing number of digital options in the video-rental marketplace. By the time the reorganization is complete, Blockbuster may also have to deal with Amazon.com, which is reportedly working to launch a Netflix-like service.
Meanwhile, Netflix continues pushing its business model into new territories and inking major deals with studios. Netflix has about 15 million subscribers, and that number could swell in the months ahead with its Canada expansion.
"The value in Blockbuster is primarily in the agreements they have with the movie studios to have access to movies on the first day that they are released to DVD. They can charge a premium for renting that movie on day one," Nissen said. "It's possible that a retailer like Target or Kmart would purchase Blockbuster. You would think those retailers, particularly Target, would want that capability in their stores to compete with Wal-Mart and Best Buy with its Cinema Now service."
Posted: 2010-09-25 @ 7:22pm PT
Blockbuster: Is there a Security Fraud and Manipulation?
Jim Keyes’s comment that Carl Icahn could be “even more helpful on the outside” raises concern about the insider information, security fraud and manipulation. There are two undisputed winners in this whole multi-year Blockbuster Drama – Carl Icahn and Jim Keyes.