Rebel Traders - Stock Market and Economic Analysis

I have written about Blockbuster Video in the past regarding their failing business. In July I wrote  ” Blockbuster Employees – Are Your Resumes Up To Date? ” Now it appears that the bankruptcy I always suspected was going to come is now just weeks away.

The LA Times has learned that a high level meeting between Blockbuster and Hollywood studios took place recently and the topic was Blockbuster Video is planning to file bankruptcy in September.

Executives from Blockbuster and its senior debt holders last week held meetings with the six major movie studios to discuss their intention to enter a “pre-planned” bankruptcy in mid-September, said several people familiar with the situation who requested anonymity due to the sensitivity of ongoing talks.

Blockbuster is hoping to use its time in Chapter 11 to restructure a crippling debt load of nearly $1 billion and escape leases on 500 or more of it 3,425 stores in the U.S. Maintaining the support of Hollywood’s film studios during the process will be critical so that Blockbuster can continue to rely upon an uninterrupted supply of new DVDs.

Blockbuster has lost a total of $1.1 billion since the beginning of 2008 and has been severely hamstrung in efforts to grow its business due to interest payments on $920 million in debt. Earlier this month the company announced that most of its debt holders had agreed to a forbearance on interest payments until Sept. 30, during which time it would attempt a recapitalization.

Last week Dallas-based Blockbuster’s chief executive, Jim Keyes, came to Los Angeles to hold individual meetings with executives at studios including 20th Century Fox, Paramount Pictures, Sony Pictures, Universal Pictures, Walt Disney Studios and Warner Bros. He was joined by a team of restructuring consultants hired to help turn around the struggling company, along with its senior debt holders who would likely end up owning a substantial portion of Blockbuster following bankruptcy. {…}  (LA Times)

My thoughts:

Even if Blockbuster does file bankruptcy and is able to emerge from it months later their ability to continue operating is likely lost forever. Netflix has the mail order DVD rental service locked in place with rental costs far lower than that of the brick and mortar Blockbuster stores.

Blockbuster claims it will eventually make a strong presence in online video streaming services, but unfortunately their entry into this type of service is late. Too many other companies have already had a head start in the online video rental / streaming arena for Blockbuster to make a serious dent.

It remains my view that Blockbuster Video will fail entirely within the next several years, at most. A bankruptcy filing for Blockbuster would bring another 700 or so store c losings and that is on top of the many stores Blockbuster has already closed over the past two years already. OnDemand video, DVD’s by mail, and a growing number of online premium movie streaming services is just too much for the brick and mortar rental company.