Blockbuster Going Bankrupt?

All the signs point to Blockbuster going bankrupt. The once strong competitor just cannot compete with emerging companies like Netflix and Redbox any longer. Back in 1985, Blockbuster was unstoppable. There was very little competition, therefor they were able to grow to a massive business. Their business model was flawless. That was 1985. In the new era of fast online video streaming and portable DVD rental boxes, Blockbuster has no chance unless they come up with an entirely new business model. They attempted to compete with Netflix with Blockbuster Online, but it was a bit late to jump into that market. Netflix has a strong grasp on the online video rental market. Even too strong for a massive company like Blockbuster.

Blockbuster agreed to a new forbearance agreement with their debt holders that will give it more time as it attempts to recapitalize. However, on Friday, Blockbuster failed to meet their $42 million debt payment, disappointing shareholders. The $42 million debt payment is just a small chunk of the $1 billion they owe. During the quarter, Blockbuster lost $69 million which equals to .32 cents per share. We believe this could be signs that Blockbuster will be claiming bankruptcy very soon.

Contributing to their huge debt is the loss of in-store customers and Blockbuster Online cancellations. With the closing of stores, Blockbuster has fewer customers. Online subscribers have been canceling their subscriptions as well. There has been a 30% drop in Blockbuster Online customers. Will this decline be a trend? We think so. Managers from stores think so as well. Back in August, Blockbuster partnered up with Comcast, and started a service called DVDs by Mail. As part of the partnership, Blockbuster has installed kiosks in some of their stores, allowing customers to sign up for Comcast services through the kiosk. Also in early August, Blockbuster announced the incorporation of video games into it’s online rental service. These available video game titles contained approximately 90 % of all game titles released since the year 2000 for Microsoft Xbox, Microsoft Xbox 360, Sony PlayStation 2, Sony PlayStation 3 and Nintendo Wii. With these additions, sales still steadily declined.

With the new forbearance agreement, Blockbuster has until September 30, 2010 to make their payment. This is the second extension creditors have allowed. Blockbuster continues to engage in discussions with their creditors and are doing everything they can to avoid bankruptcy.