Blockbuster Video Files for Bankruptcy

Blockbuster has officially filed for Bankruptcy today.  Blockbuster will continue to operate its 3,000 U.S. stores while digital and mail businesses will all continue to operate normally. Operations outside the U.S. and domestic and international franchisees are not part of the Chapter 11 reorganization. Blockbuster's U.S. DVD vending kiosks, owned and operated by NCR Corp., are also not part of the reorganization and will continue to operate normally. 

This comes as no surprise to us since we’ve been predicting the demise of Blockbuster ever since Netflix came on the scene and changed the way people rent and stream movies to their homes. After sinking from mounting losses, rising debt and competitors that have better catered to Americans' changed media habits it was time to put the nail into their blue proverbial coffin.  This marks the end of an era of the giant rental company that bought out local mom and pop video shops to put them out of business. 

Let’s face it, we live in an era of convenience and instant gratification where avid movie watchers are forgoing Blockbuster and watching movies via video subscription services like Netflix Inc., video on demand and vending machine services such as Coinstar Inc.'s Redbox.  Netflix subscribers have grown from 1 million in 2002 to 15 million in 2010. Redbox, meanwhile, operated 26,900 kiosks as of the end of June. Wedbush Securities analyst Michael Pachter predicts that number will exceed 28,000 by the end of September.

In a submission to the U.S. Bankruptcy Court in the Southern District of New York on Thursday, the company said it reached an agreement with bondholders on a recapitalization plan. Under the plan, bondholders will exchange nearly $1 billion in debt for equity in a reorganized Blockbuster. The company has received commitments for $125 million in "debtor-in-possession" financing from senior noteholders to repay customers, suppliers and employees during the reorganization.

"After a careful and thorough analysis, we determined that the process announced today provides the optimal path for recapitalizing our balance sheet and positioning Blockbuster for the future as we continue to transform our business model," said CEO Jim Keyes.  In other words, we found a way out of paying our debts for bad business decisions and will use this method as a way to regroup and figure out how we can keep this sinking ship afloat and copy a business model that works such as Netflix. 

Blockbuster said in its filing it had about $1 billion in assets and $1.46 billion in debt.