Thursday, March 25, 2010
Blockbuster Desperately Trying to Avoid Bankruptcy
With massive debt totaling almost $1 billion, Blockbuster is in serious danger of filing Chapter 11 bankruptcy. The movie rental company has recently made several big moves in a last desperate effort to avoid this fate.
In an attempt to beat rival Netflix to the mobile movie market, Blockbuster announced this week that it will be offering on demand video in conjunction with T-Mobile's HTC HD2 smart phone. They expect to offer a similar service with the Android and Windows Mobile phones soon.
This week, Blockbuster also signed a new agreement with Warner Bros. movie studio guaranteeing that all of the studio's movies will be available for release by Blockbuster one month prior to their release through rival rental companies such as Netflix and Redbox.
While these moves should significantly improve the current state of the company, it is unlikely that they will be enough to keep Blockbuster out of bankruptcy. Once the largest and most profitable movie rental company in the country, Blockbuster has fallen on tough times in the past decade.
In 2004, the company acquired approximately $1 billion of debt due to their separation from Viacom. At the time, they were generating approximately $500 million in profits each year and expected to be able to reduce the debt quickly. However, the rise of Netflix accompanied by several questionable business decisions has kept Blockbuster in financial disarray.
For the better part of the last ten years, Blockbuster has been trying unsuccessfully to keep pace with Netflix in the mail-delivery movie market. This service has largely eroded the in-store video rental market, placing Blockbuster in a precarious financial situation. By the end of 2010, the company will only have approximately 3,000 video stores left in the United States, 1,500 fewer than they had at the start of 2009.
If these latest moves do not radically turnaround Blockbuster's fortunes in a relatively short period of time, bankruptcy seems all but unavoidable.