By casting off nearly $1 billion of debt and closing as many as 800 stores, Blockbuster is betting that it can emerge from Chapter 11 leaner and better able to compete in the digital age.
Others think that Thursday’s filing doesn’t represent a second chance so much as it signals the end of an era.
“The market is shrinking,” Edward Woo, an analyst with Wedbush Morgan Securities, told TheWrap. “People are not interested in going to the video store anymore, and going through bankruptcy is not going to change that. Debt was a big part of a their problems, but a changing business was a bigger factor.”
Indeed, while a significant portion of the population still hits the video store -- Blockbuster and its ilk command some 60 percent of the rental market -- that number is dwindling. Revenues from bricks-and-mortar stores fell 10 percent in 2009 to $4.9 billion, according to Adams Media Research. It's expected 2010 will be far worse.
Of course, there is one constituency that clearly hopes that the Dallas-based rental chain can rise phoenix-like from the ashes -- the Hollywood studios. Not only are they on the hook for tens of millions of dollars as the company’s creditors, but Blockbuster historically has rented and sold discs at more generous margins than Redbox and other chains.
“No studio wants to see one of its biggest distributors go down,” a studio executive told TheWrap. “The company's financial situation was a mess, but there still is a big demand for packaged media.”
(Don’t weep for the studios, though. Many of them have a lien on Blockbuster’s still relatively robust Canadian business. It’s doubtful they’ll lose much money by helping the chain kick around for a few more years.)
What Thursday’s filing does do is enable Blockbuster to ramp up the pace of its transition to a digital market. It’s already signed a distribution pact with NCR Corp. to unveil thousands of kiosks and has experimented with digital distribution through an online on-demand service and partnerships with mobile companies such as Motorola.
Also, off-loading its debt and shuttering stores will give Blockbuster the cash it needs to promote its new multi-platform offerings. The inability to fund a national advertising campaign has crippled the company over the past year -- a weakness brought home most clearly in its inability to capitalize on the fallout over the lengthy release window fight between studios and Netflix and Redbox. As the only rental chain with the ability to rent films on the same day they hit store shelves, Blockbuster enjoys a competitive advantage over its two rivals, both of which have to wait 28 days before they can offer new releases.
“They were doing all this great stuff that no one was aware of -- from the 28-day rental advantage to not charging a premium on Blu-rays, and now they can finally promote these initiatives,” Tony Wible, an analyst with Janney Montgomery Scott, told TheWrap.
