Wednesday, March 17, 2010

Can't believe Blockbuster is going bankrupt -- how the times change

I can't believe Blockbuster is warning about a possible Chapter 11 bankruptcy.  I still remember back in the days, in my childhood, when all we had were mom and pop local movie rentals.  Then big retailers like Blockbuster moved in and in a short time drove all of the mom and pop stores out of business.  Instead of walking down the street for a movie, I now had to commute to downtown Palo Alto to fight everyone else for a limited selection of new releases.

After college, there was a short period of time when NetFlix came onto the scene (and founded by an alumni of my alma mater).  At the time, the survival of NetFlix looked uncertain.  How can a start up compete with the giant Goliath?  Blockbuster can easily set up their own mail order rental business and along with their store presence easily eliminate the competition.  Let's be realistic, sometimes we just don't want to wait for the queue and just walk down the street to rent a movie ourselves.

Now comes the advancement of broadband internet.  As more family subscribes to this service, and making Comcast a very wealthy "monopoly", more and more individual start just watching TV and downloading movies from online.  NetFlix and other companies took advantage of this by having streaming on Demand movies. 

I'm still not quite sure why Blockbuster couldn't quickly change their step to meet consumer demand and technology changes, but I guess the old saying still stays true, "if you're not advancing, you're falling behind."

Blockbuster: Bankruptcy is a possibility

Movie rental chain Blockbuster said in a Securities and Exchange Commission filing it may have to file for Chapter 11 bankruptcy protection if it is unable to generate enough cash flow to meet or restructure its debt commitments.

In the filing, the Dallas-based movie rental chain attributed its weakened operations and cash flow to increasing competition. The company indicated that its cash flow situation has “threatened the company’s ability to continue as a going concern.”

For the year ended Jan. 3, Blockbuster reported a net loss from operations and a stockholders’ deficit.

The company added in the March 16 filing that, if its operating results continue to drop, it may lack the cash flow needed to meet its liquidity needs.

The company once was owned by South Florida mogul H. Wayne Huizenga, who sold it to Viacom for $8.4 billion. Viacom relocated Blockbuster's headquarters to Dallas.

Blockbuster's struggles have been no secret.

Aggressive competition from new movie rental sources and disappointing holiday sales at Blockbuster resulted in the movie rental company reporting a $558.2 million net loss for fiscal 2009.

CEO Jim Keyes spoke honestly about those results earlier in the year, saying “the next 12 to 18 months will remain challenging as we balance the secular decline of a single channel with the ascension of emerging channels.”

Blockbuster's net loss of $558 million, or $2.93 a share, was based on revenue of $5.065 billion. That is a much deeper loss when compared with fiscal year 2008, when the company lost $374.1 million, or $2.01 a share, on revenue of $4.062 billion.

The company’s fourth quarter results also showed signs of a business that is struggling against emerging media trends and a business cycle that has been unforgiving to companies in general.

To compete, Blockbuster said earlier in the year it intends to grow its by-mail video rental channel and continue to expand its digital movie offerings through On Demand to compete against new movie rental mediums.

Blockbuster declined to comment on rumors earlier this week that the company intends to offload its European arm.

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