Closing signs in hundreds of store windows, staggering debt and a cratering DVD market. Is this the end for Blockbuster?
After years of getting it wrong, the once-proud rental titan is finally slashing stores and flirting with rental kiosks. Some analysts say they're making all the right moves -- but it may be too little, too late.
"They're trying lot of different things, and best of all, the management of the company has shown they've very flexible," said Michael Arrington, an analyst with Adams Media Research.
When it comes to Blockbuster's woes, the culprit is a shifting movie rental landscape that is beginning to favor video-on-demand and subscription services over movie rental chains.
Store closures are essential to the survival of the Dallas-based company that parted ways with then-parent Viacom in 2004. Here, Blockbuster has shown a willingness to wield the ax and not just the scalpel -- it may shutter more than 950 locations by the end of 2010.
Randy Hargrove, a spokesman for the chain, said it was working to retain as many of its employees from closed locations as possible. (photo by Patty Boh/Flickr)
But its drive to cut overhead and raise profitability can't happen fast enough. The beleaguered DVD chain's third-quarter earnings, released Nov. 13, were dismal. Blockbuster reported a 21 percent plunge in revenue to $910 million, down from $1.2 billion the previous year. The company's losses widened to $116.8 million, or 60 cents per share, from $20.6 million, or 11 cents, in the same quarter a year ago.
Its train wreck of a balance sheet has led Wall Street to essentially consider the teetering chain a penny stock. Blockbuster shares were trading for 62 cents on Tuesday.
To make matters worse, a pair of rivals is breathing down Blockbuster's neck. Netflix reported 24 percent revenue growth last quarter, and Redbox, the kiosk rental giant, saw a whopping 90 percent surge in revenues over the previous three months.
"In the past they’ve been the late mover in the industry, and they're in the part of the business, rental stores, that's being the most hard hit," Stacey Widlitz, a retail analyst with Pali Research, said of Blockbuster.
The company also is struggling with onerous interest payments on some $962 million in debt, much of it a holdover from lease obligations remaining from the 2004 split with Viacom.
But there have been positive developments on that front. A debt refinancing agreement reached in September helped Blockbuster avoid bankruptcy by extending the life of its loans until 2014. Blockbuster also got a lift through $675 million it raised in a debt offering, which it plans to reinvest in stores and digital projects.
Prior to these moves, a liquidity crunch had compromised the company's ability to reposition itself and had restricted the purchase of new inventory. The latter was a potential death sentence for a business that had long prided itself on having shelves overflowing with new releases; it also hobbled its efforts to ramp up a Netflix-style online service that started in 2004 but has been largely neglected since.
