Blockbuster (BBI) could benefit from the news that Movie Gallery will close all of its 2,415 U.S. stores and liquidate its inventory. Though Movie Gallery already declared bankruptcy, the movie rental chain had hoped to stay alive after some restructuring. Movie Gallery also operated locations under the Hollywood Video and Game Crazy brands, and all will be closed at an undetermined date. Netflix (NFLX) may also benefit.
BBI stock jumped by double digits yesterday on the news. Its chief rivalNFLX stock was also up measurably — but considering the stock is up 64% since February, that’s nothing to write home about. In fact, some experts think Netflix stock should be sold since its overbought.
Blockbuster earnings have not impressed, as BBI stock has posted three straight quarterly losses and is on track to post another when it posts earnings on May 13, while NFLX stock has grown its EPS in the last three quarters and is set to do so again if it hits estimates for next quarter. It’s going to take some serious revenue and restructuring for Blockbusterto fend off Netflix.
Believe it or not, Movie Gallery could go along way towards helping Blockbuster on this front. While the chain wasn’t profitable, it did manage to generate $750 million per year renting video games, DVDs and Blu-ray Discs out of retail locations. Netflix may gobble up some of that pie to meet the demand, but BBI has a good shot at some of these customers. In fact, it may have a much better chance of reaching out to these consumers than the internet rental company.
Some Movie Gallery customers were hardcore movie fans who don’t want to wait for some of the titles that are delayed in release by Netflix or in too high of a demand to be shipped promptly. NFLX and ultra-cheap DVD vending machine operator Redbox both have 28-day delay for new release title negotiated with studios, ostensibly to prompt DVD sales by die hard fans in that initial month-long window after release.
That means if you don’t want to wait that means you have two options – but the disc at full price, or rent it from your local video store. With Movie Gallery out of the picter, BBI now has a near monopoly on this market.
BBI execs recently announced they inked two more deals with movie studios securing rights to rent movies from its stores and by mail the same day they are released for sale on DVD. The deals with Twentieth Century Fox Home Entertainment LLC and Sony Pictures Home Entertainment Inc. are important weapons in its fight to prove it can provide quicker release of quality films than its mail-order rival Netflix or vending machine of privately-held Redbox.
Yes, Blockbuster is on the verge of bankruptcy. (Read more about Blockbuster BBI stock and its challenges here.) In its 10k filed in March with the SEC, Blockbuster said that if it can’t boost its operating income and if it is unable to restructure its debt, the company has “substantial doubt about our ability to continue as a going concern.”
But Blockbuster is fighting for all its worth. If it can actually turn a profit soon, the company may not just avoid bankruptcy but give Netflix a real run for its money.
As of this writing, Jeff Reeves did not own positions in any of the stocks mentioned here.
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