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Blockbuster Rolls “11”

September 23, 2010 | Author: Ibex Marketing

Is anyone surprised by this morning’s news that Blockbuster has filed for Chapter 11 bankruptcy protection? It has been rumored and discussed for months (years?). Squeezed hard by Netflix’s mail service and the Redbox kiosks, it has become increasingly difficult for Blockbuster to compete in the movie rental business with their traditional brick-and-mortar approach. As I’ve discussed here repeatedly, the company is working to make forays into both the online delivery and kiosk rental markets, but it continues to look like too little, too late, to save the company.

Today’s news indicates that this is a “structured bankruptcy” in which about 80% of the debt holders have agreed to reduce the existing $930 million of debt down to less than $100 million. That means that the creditors are going to take a bath on this one, but leaves open the possibility that the company might recover and be able to pay back the the remainder.

Blockbuster did close about a quarter of its stores last year, and may close as much as a third of the remaining 3,300 stores this year. It does have more than 6,600 kiosks already in place. It cut more than $300 million in annual costs last year, and plans to cut nearly $250 million more this year, but it lost more than $550 million in 2009. The company does have a strong brand, however, which could serve it well if it can gain a competitive foothold in either the online or kiosk markets.

Overall, I’d still have to say that the future looks gloomy for Blockbuster.