Blockbuster prepares for bankruptcy

[The NZA]

source

 

After dominating the home video rental business for more than a decade and struggling to survive in recent years against upstarts Netflix and Redbox, Blockbuster Inc. is preparing to file for bankruptcy next month, according to people who have been briefed on the matter.

 

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 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.

 

Former Sony Pictures home entertainment president Ben Feingold, who is serving as an advisor to the debt holders, was present as well.

 

Though its plans are not yet set in stone, people knowledgeable about the discussions said the Blockbuster representatives presented a mid-September bankruptcy as the most likely scenario. It would enter what is known as a “pre-planned bankruptcy,” meaning most but not all creditors would be on board ahead of time, including senior debt holders and content suppliers.

 

One of the primary goals of the bankruptcy process, which the company said it hopes would last about five months, would be to escape costly leases for some of its worst-performing stores. Though Blockbuster hasn’t decided exactly how many locations it would seek to shutter as part of a bankruptcy, executives told the major studios it is looking at between 500 and 800.

 

Blockbuster closed nearly 1,000 stores in the last year alone, a reflection of consumers’ rapidly declining interest in renting DVDs from retail locations now that they can rent them from ubiquitous kiosks in grocery stores, in the mail, or via the Internet.

 

If it successfully exits bankruptcy, Blockbuster has told Hollywood studios, it hopes to grow through non-retail initiatives. Kiosk manufacturer NCR Corp., for instance, has already deployed about 6,000 Blockbuster-branded kiosks that, like Redbox, rent DVDs for $1 per night.

 

The company also hopes to expand its presence in the still nascent digital distribution space, through which a growing number of customers are downloading or streaming movies on computers, Internet-connected televisions, and mobile phones.

 

Most studios are believed to be supportive of Blockbuster’s efforts, as they want to see it remain in business as a viable competitor to Netflix and Redbox, particularly since the formerly second-largest DVD rental store, Hollywood Video parent firm Movie Gallery Inc., went out of business in April.

 

But there are still some issues to be resolved, including the company’s desire to continue offering movies from all the studios on the same day they go on sale. Fox, Universal and Warner have all instituted a 28-day window on rentals through Redbox and Netflix.

 

The studios would likely be protected from any significant losses on payments Blockbuster might owe them at the time it files for bankruptcy under the proposed plan. But they would lose revenue from any stores shut down.

 

The parties most impacted would be Blockbuster’s junior debt holders and the landlords of leases that would be canceled under the proposed bankruptcy. It remains to be seen whether they would attempt to challenge a plan that left them with a fraction of what they are owed.

 

If the company does not enter bankruptcy, it would need to find a new investor or convince its debt owners to significantly reduce its interest payments for the foreseeable future.

 

A Blockbuster spokeswoman declined to comment on the studio meetings. In a statement, she said, “The extension of our forbearance agreement is a strong sign of support from our senior secured noteholders as we work toward putting in place a more appropriate capital structure to support Blockbuster’s long-term growth. … Our discussions continue to be productive and we have every reason to believe we will come out of the recapitalization process financially stronger and more competitively positioned for the future.”

 

Blockbuster stock, which last month was delisted by the New York Stock Exchange because of its ongoing low price and moved to the over-the-counter market, closed Thursday at 11 cents. The company’s total market value is $24 million.

 

In 1994 it was acquired by former owner Viacom Inc. for $8.4 billion.

 

--Ben Fritz

 

didn't even know about this till Yahve put me onto it...i guess netflix & others made their dent? here's to the return of mom & pop stores! blockbuster having an awesome sale on games & blu-rays! uh, digital distribution!

[Keth]

:( this saddens me. not that this wasnt seen a mile away, but nonetheless it sucks. all for digital stuff, but nothing replaces going into a store and talking with the workers about whats good this week, etc.

[The NZA]

i get that. personally, i haven't done that much since like almost 10 years back, and i do miss the mom-and-pop stores that i'd trade in games or just go in to find a movie to watch...but none of them were as cool as the ones i saw in san fran, they had almost a whole store of freaking documentaries, shit was impressive.

 

i guess id agree more with you here if i hadn't recently seen netflix streaming, their on-demand catalog wasn't bad.

[Lipala]

To be honest, I'm surprised it took this long. I worked for Blockbuster back in 2002 and even then I saw this coming.

[Reverend Jax]

<br /><a href="http://www.theonion.com/video/historic-blockbuster-store-offers-glimpse-of-how-m,14233/" target="_blank" title="Historic ‘Blockbuster’ Store Offers Glimpse Of How Movies Were Rented In The Past">Historic ‘Blockbuster’ Store Offers Glimpse Of How Movies Were Rented In The Past</a>

 

The Onion is always ahead of the news. That video was from early 2008. But it's not like Blockbuster didn't suffer from expanding too fast.

 

I saw the Blockbuster near my store is having a 5 for $20 deal on pre-owned DVDs. Not great, but I'll check it out. I'm concerned for the future of that store though. It is the anchor of my shopping center, and if it closes it's doors, any time before something else comes in would not be good for business, and frankly, I'm concerned that whatever goes in there instead will not have as positive an impact on my business.

 

All that said, yeah, who didn't see this coming? When Blockbuster started doing their flat monthly rate where you could do DVDs in the mail or at a retail store, for the same price as Netflix, I thought having the option to hit up your local blockbuster for an impulse rental would give them the edge over Netflix. I think Netflix was first to jump into On-Demand, but Blockbuster got into that game too. I'm not surprised that they are closing retail locations, but bankruptcy? I guess the article didn't mention what kind of bankruptcy; it could be the kind that businesses use to continue doing business but allows them to get out of certain contractual obligations (in this case, leases for their poorly-performing stores).

[Lipala]

I guess the article didn't mention what kind of bankruptcy; it could be the kind that businesses use to continue doing business but allows them to get out of certain contractual obligations (in this case, leases for their poorly-performing stores).

 

You're referring to Chapter 11 and from the "future plans" Blockbuster is quoted as having, it sounds like this is exactly their plan.

[Maldron]

5 for 20 is a regular deal, not a firesale deal. I wonder what their firesale deals will be.

[Reverend Jax]

You're referring to Chapter 11 and from the "future plans" Blockbuster is quoted as having, it sounds like this is exactly their plan.

Exactly. Since they are a business, I believe only chapter 7 or 11 could apply.

[MetalHeart]

Will franchises be effected?

[Lipala]

Will franchises be effected?

 

Most likely not. In a reorginization they are required to show a plan for better reveniew streams. Reallisticlly franchises aren't a drain but rather an income source and should be safe.

[The NZA]

I guess the article didn't mention what kind of bankruptcy; it could be the kind that businesses use to continue doing business but allows them to get out of certain contractual obligations (in this case, leases for their poorly-performing stores).

 

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.

 

 

anyway, this bit was odd, too:

 

Blockbuster stock, which last month was delisted by the New York Stock Exchange because of its ongoing low price and moved to the over-the-counter market, closed Thursday at 11 cents. The company’s total market value is $24 million.

[MetalHeart]

Most likely not. In a reorginization they are required to show a plan for better reveniew streams. Reallisticlly franchises aren't a drain but rather an income source and should be safe.

 

 

 

Phew!! Thanks <3

[Lycaon]

Not a fan of Blockbuster (prefer local video stores such as I Luv Video and Vulcan Video, and the Movie Store while it was still open), but given the economy, any time a big business goes bankrupt, it is disheartening. Still haven't used Netflix and the like. Probably won't, if I can help it.

[Special K]

Phew!! Thanks <3

 

 

You can say that again!!

[Panch]

Man, Blockbuster tried there at the end by offering exclusives on movies only found through them. I know I bought Timecrimes from them because of that reason.

[Lorelei]

Good. Pig disgusting store. We should start a holywar against bad cinema.

Edited August 31, 2010 by Lorelei

[The NZA]

Panch - were you able to get the unedited version that way?

[Panch]

Not unedited, but re-cut. In chronological order. Basically two VERY different movies. Awesomeness in a box. And Blockbuster was the only place to have it that way. Part of their 'Blockbuster Exclusive' thing. Jon was the one to pimp me to these. Lots of flicks with the 'Exclusive' moniker, but Timecrimes was the best of the bunch... to me.

[The NZA]

America has just one Blockbuster left

 

 

If movie-streaming seems like Goliath, Blockbuster video store owners are an industry's Davids still fighting to keep the brand alive.

This week, there are three stores remaining, but by next week there will only be one store open for business -- in Bend, Oregon.
Alaska's last two Blockbuster stores -- one in Anchorage and another in Fairbanks -- announced they would officially close on Sunday.
Sandi Harding, the Bend store's general manager, told CNN she was surprised her store was the last one open.
"It's pretty exciting that we are the last holdout," she said.
Bend's Blockbuster looks just like stores from years ago -- yellow on the inside and employees sporting blue shirts. They even have floppy disks and old computer systems, Harding told CNN.

After Sunday, this video store in Bend, Oregon, will be the last remaining Blockbuster in the US.
"It's very nostalgic," she said. "We have a bunch of 19-year-olds working here -- it's fun explaining to them what a floppy disk is."
The shelves are stacked with movies, ranging from titles as old as "Citizen Kane" to as new as "The Quiet Place," which was released on Tuesday.
Every Tuesday morning Harding buys the newest titles to stock the store.
"I go out at 6-7 o'clock in the morning buying the new movies, getting what people want, trying to stay relevant and keep our customers happy," she told CNN.

[Keth]