Finally, the End of the Line for Blockbuster?

Blockbuster has nearly run out of money again. It wants its bondholders to put up more capital as it wrestles to exit Chapter 11. If some of the bondholders balk, Blockbuster will almost certainly be sold off in parts. The question is, what parts?

The Wall Street Journal reports that "after poor holiday sales and new estimates for a costlier turnaround, the company is asking bondholders for an additional $200 million to $250 million to be used after the chain exits court protection." If holiday sales were poor, there is no reason to believe 2011 revenue will be any better.

The talks between Blockbuster and its creditors, who effectively own the company after an earlier restructuring, are in their early stages, but the video rental chain needs the capital. That gives all the leverage to the bondholders, who are led by investor Carl Icahn and hedge fund Monarch Alternative Capital LP, according to the Journal.

Blockbuster could close more of its over 5,000 stores, but it would seem that if those stores have been performing poorly they would have been closed already. It's hard to imagine why Blockbuster would shutter locations that are currently profitable.

So what exactly does Blockbuster have left to sell to potential buyers? The company's business model is broken. Nearly 30,000 Redbox kiosks run by Coinstar (CSTR) offer alternatives to customers. The kiosks cost very little to run. Coinstar recently said that sales at its locations have slowed, which means that the marketing of DVDs through any type of physical outlet may no longer be of interest to consumers. It has often been said that the Netflix's (NFLX) system of DVDs through the mail and via video-streaming has disintermediated the aged Blockbuster model. That leaves Blockbuster with nearly nothing of value.


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bunnyfunny47

Blockebuster, just like many other corporations these days, pay their employees very little and work them like it was a Chinese production line. Labor is cut to the bone, Late fees I've gotten charged for, even though the movies were returned before time limit expired. Corporate had district managers that played the favoritism game when it came to who got managment positions, firing other from their jobs to make way for buddies of theirs. (Corporate received numerous complaints yet did absolutely nothing about this) And you have to even wonder about low employee morale?

January 18 2011 at 5:11 PM Report abuse rate up rate down Reply
cubamex2003

No financial genius, but, if you can't make $ over the holidays, when in the hell will you ever make it ?

January 18 2011 at 3:54 PM Report abuse +1 rate up rate down Reply
Mom and Dad

late fees, no late fees, no late fees, late fees, poor service, $5 to rent an old movie, $8 to rent a game. Screw game rentals. I pay $9 a month and we see two movies a week, not including streaming. They look like Hollywood video did at the end, get 'em with a late fee, get 'em with a late fee.

January 18 2011 at 1:58 PM Report abuse +2 rate up rate down Reply
1 reply to Mom and Dad's comment
vanstheman

Yeah they always changed policy with little or no warning at all. I got an e-mail from BB saying they have a 99 cent 3-day rental thing going. The local store has a banner up for it too. My buddy went in there on Friday. He said he asked the clerk if they had any new rentals for that price saying he hadn't been there in a while. The clerk snapped at him and said "Are you kidding? Blockbuster would NEVER let a new release go for just a dollar!".. My buddy didn't know if his tone was calling the company cheap or thinking he was a fool for even asking that. There was only one little section for 99 cents. Other older releases were going for $2.99 while all new stuff was $5..My buddy walked out without renting a thing. He and his wife rented The American at home On Demand. A little more pricy but he didn't have to worry about returning it or any late fees.

January 18 2011 at 2:16 PM Report abuse rate up rate down Reply
rip300rog

I miss the neighborhood Block Buster, in fact, all three of them and the Hollywood Video that are now closed. I resisted BlockBuster for years because they came in and swallowed up all the little independent video stores, but finally I became a fan, only to have the paradiem change again. I haven't been watching many vids, I have yet to embrace the Netflix system and those stupid kiosk are always busy with limited choice. Time to read a book.....

January 18 2011 at 1:49 PM Report abuse +1 rate up rate down Reply
bwyou812

That's what happens when you try to sell pre-rented dvd's for more than a
new dvd at a dpartment store ! Also the sign of the times. Instant downloads,
pay-per view networks. All video stores will be gone. You can now rent in
vending machines!!

January 18 2011 at 1:43 PM Report abuse rate up rate down Reply
windswest

i download Blockbuster rentals to my Droid X - love it!

January 18 2011 at 1:09 PM Report abuse rate up rate down Reply
mikeclint1

Blockbuster's financial issues have nothing to do with the potential profitability of their standalone stores. The problem is the debt that they are carrying, and the revenue sharing arrangements that they have with the major studios. I owned several video stores over 20 years, and with the revenues that a Blockbuster store generates, any legitimate operator that knows the industry could net 25% or close to it on 4 Billion in revenue. With a little restructuring, it could easily be the most profitable entertainment brick and mortar company in existence. The bean counters that run the business think that they have to split revenues with studios, when in reality 1st sale doctrine protects they from doing so. All they need to do is buy the DVD's and rent them, and then they're paying down debt in 90 days. Anyway, blockbuster's stupidity ruined the entire industry many years ago, and the beancounters that run it never had a clue. Most of the player's in the industry moved on 5-8 years ago when it was obvious to all of us. A little thought for anyone with a brain. Blockbuster has a $25 million market cap on 4 billion in revenue. Blockbuster's inner mechanics have been broken for at least 10 years, but the beast that generates the revenue never has been, and has only started to waver in the past 2-3 years. There's still a chance for blockbuster to right itself, but it is moving in the wrong direction. I keep waiting for a former industry insider like Wayne Huizenga to step in and take Blockbuster private. There is at least several billion to be made from Blockbuster with just a few simple tweaks. Am I the only video insider that sees this? Anyway, not looking for any responses, or rebuttals, just trying to give some real perspective from an industry insider of 20 years that has moved on to greener pastures.

January 18 2011 at 12:34 PM Report abuse rate up rate down Reply
4 replies to mikeclint1's comment
Buckingham's

In this day and age of down-loading movies, and red coinstar movie boxes, Blockbuster is going to go the way of the iceman or the milkman.

January 18 2011 at 12:04 PM Report abuse +2 rate up rate down Reply
gafliers

Seems to me that Blockbusters time has "come and gone". And none too soon. Their customer service was non-existent. I quit giving them my business a long time ago, the endless lines to check-out and their lack of inventory drove me, and I suspect many others, away.

January 18 2011 at 11:55 AM Report abuse +3 rate up rate down Reply
hi marge how r u

I used to work for blockbuster from 99-2005. I saw quite a few problems. First
they wanted everyone to sell whatever program they had. Rewards Programs was Ok but then they wanted us to sell games program too. If you did not rent that much there was no reason to sell these programs to customers. Then instead of giving the employees reasonable raises you only give a quarter of hr raise. The stores at one time had a descent number of movies but not all they got is a bunch of crappy movies. When I fisrt started management was descent but when someone goes through every store tape just to get rid on managers shows they are care about the execuetives and do not want anyone who is not a execute getting any money. It serves them right. BB die and take your execs with you.

January 18 2011 at 11:48 AM Report abuse +1 rate up rate down Reply
3 replies to hi marge how r u's comment