Blockbuster Video Faces Bankruptcy

by Jordan Yerman | March 17, 2010 at 11:01 am

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Blockbuster Video May Seek Chapter 11 Bankruptcy Protection

Blockbuster Video (BBI) has warned that it may have to seek bankruptcy protection. The video rental giant, which spread around the world during the VHS era before transitioning to DVD and video game rentals, is having trouble keeping up with its digital and web-based competitors.

The emergence of companies such as Netflix, which rent out DVDs to subscribers via mail was the first sign that Blockbuster faced an uncertain future if its business model didn't change radically. As broadband became cheaper in the US, however, netflix, among others, began supplying streaming video for some movie titles.

Suddenly, movie fans didn't even have to leave their desks, never mind go to the mailbox, to get rental movies. The chain video store seemed really far away.

While local video stores have faced the heat from online rentals as well, those that have survived this long have been tempered by years of battle with the very chain stores most threatened by mainstream download subscriptions. Local shops can diversify by carrying hard-to-find and cult titles, which brick-and-mortar chain stores can't do with equal ease.

So here we are: Blockbuster has made moves toward DVD-by-mail and downloading, but did not do so fast enough: In the USA, which is Blockbuster Video's major market, Netflix has the advantage of brand recognition.

As such, Blockbuster will have to close around 500 stores this year, as well as selling off underperforming entities and cutting operating costs across the board. This still may not help, though.

"We are currently experiencing significant liquidity constraints," said Blockbuster's disclosure. "Should we not be able to generate sufficient cashflow from operations and should the studios tighten or eliminate credit terms, we may determine that it is in the company's best interests to voluntarily seek relief through a pre-packaged, pre-arranged or other type of filing under chapter 11 of the US bankruptcy code."