Blockbuster (PINK: BLOKA) is well on its way to filing for chapter 11 bankruptcy protection. And industry insiders say a Blockbuster bankruptcy could signal more than just the last breath of a company that seemingly had ample opportunity to change its business model to save itself. Rather, the Blockbuster failure would be a footnote in the budding history of streaming video and digital content.
Media reports acknowledged rumors that Blockbuster Inc. is planning to file for pre-planned Chapter 11 bankruptcy protection soon, perhaps as early as mid-September. The company has lost more than $1 billion since fiscal year 2008 and is reportedly $920 million in the red. The company’s net loss for the second quarter of this year was some $69 million (32 cents per share), compared to a net loss of $37 million ($0.21 per share) in the second quarter of 2009.
In addition to the closings that have already happened, perhaps as much as 20% of its current stores are to close – anywhere from 500 to 800 or perhaps more — while the company looks to restructure to stay afloat financially. At this point however, it’s likely too late. If its numbers continue to fall as expected, this could literally be its end. The company is now looking to “restructure financially” in what could ultimately be a prolonged death.
The bankruptcy news marks only the latest in the domino-like fall of the video rental giant. Mail order video rental such as Netflix Inc. (NYSE: NFLX), kiosk-style renting at privately-held Redbox machines, and now online movie and television streaming all helped kill Blockbuster’s seemingly unbeatable brand. According to the Los Angeles Times, Blockbuster executives recently met with six of the largest Hollywood film studios to brief them on the matter — showing that the company still hopes to alter its business model to regain its footing.
There have been numerous signs of change that the company all but ignored, likely because at its peak in the 1980s and ‘90s, Blockbuster was the go-to location to rent videos. When NetFlix began its subscription service in 1999, video rental still was king. Although Netflix didn’t take off until the early part of this decade, the video rental giant all but refused to change gears – even moving in a bid to acquire its brick-and-mortar competition, Hollywood Entertainment, instead of looking ahead.
While online video watching soared in mid-2000, Blockbuster held fast. Netflix, meanwhile didn’t need rental space, store managers, clerks, and due to its multiple shipping centers, it rarely runs out of popular video titles. Netflix is up +123.10% year-to-date against the Dow’s -3% and the S&P’s -5.5%.
Redbox, the $1 per night rental service which offers 22,000 kiosk-style video rentals nationwide, also was largely ignored by Blockbuster in the early part of the decade. Instead of putting money into similar machines or even looking online, Blockbuster instead opted for the public-relation nightmare of “no late charges” – which were exposed as misleading and led to charges of misrepresentation in 48 states and the District of Columbia. Too add further injury, Hulu and iTune’s services splintered the video-watching crowd.
The company waited too long before it began copycatting. Only in the last few years has Blockbuster branched out to Netflix-like service, and just in 2009 rolled out a network of$1 per night DVD-renting kiosks. Many observers say it’s just too late in the game and are hedging their bets the formerly giant company becomes a tiny one. There is a silver lining, that could keep the store alive: It’s still pretty much the only rental store in the game, as Movie Gallery will close all of its 2,415 U.S. stores and liquidate its inventory.
After all, there are still bound to be people out there who rent videos from stores, right?
As of this writing, Burke Speaker did not own a position in any of the stocks named here.
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