Blockbuster Files for Chapter 11, Listing Studios as Creditors

Will continue operating its 3,000 stores as a result of an agreement with bondholders in which it is swapping some of its debt for equity

Blockbuster filed for Chapter 11 bankruptcy reorganization Thursday in New York, listing major studios among its top unsecured creditors.

The troubled rental giant announced a reorganization, saying it would continue operating its 3,000 stores as a result of an agreement with bondholders in which it is swapping some of its debt for equity. The company has closed nearly 1,000 stores in the last year. (Read the whole filing.)

While the Bank of New York Mellon was listed as Blockbuster’s biggest unsecured creditor with $315 million owed, the filing also listed 20th Century Fox Home Entertainment ($21.6 million owed); Warner Home Video ($19 million owed); Sony Pictures Entertainment ($13.3 million); the Walt Disney Co. ($8.6 million); Universal Home Studios ($8.3 million); and Lionsgate ($7.9 million) as its next biggest creditors.

Also listed: Summit Entertainment ($3 million owed) and Starz Media Anchor Bay Entertainment ($2.8 million).

In a letter to vendors, Blockbuster said the claims will now go through bankruptcy court.

“If vendors have not received payment for services or goods Blockbuster received prior to the filing, we cannot make the related payment without specific authorization from the Bankruptcy Court,” the letter said. “Information about submitting a claim for unpaid pre-petition goods or services will be made available at a future date.”

Blockbuster said that consumers will see little difference. Gift cards will be honored and all stores will remain open.

“For more than 25 years, Blockbuster has been the go-to source for the best selection of at-home movies and game entertainment,” chairman-CEO Jim Keyes said in a statement. “We are continuing to provide our customers with the same outstanding convenience, service and value that have defined Blockbuster from the start, while we take action to become financially stronger. We look forward to continuing to provide our customers with the best, most convenient access to brand new releases and to continuing to enhance the Blockbuster experience."

In a sign of how far Blockbuster has fallen, the company was recently de-listed from the New York Stock Exchange with shares trading at less than $1. It was granted a stay of execution at the beginning of July, when bondholders gave the company a six-week extension on a $42.4 million interest and principal payment.

Analysts, however, said the biggest issue has not been not the debt. "It’s that consumers are renting movies from other sources,” Edward Woo, an analyst with Wedbush Morgan Securities, told TheWrap last month. “Even without the debt they’d be in a precarious position, because Netflix has the momentum. They’re losing customers, so they’d get to this place eventually.”

Blockbuster has long maintained that its brand recognition would help it weather this fiscal free-fall. To that end, it has lent its name to cell phone companies T-Mobile and Motorola for an OnDemand movie download service, and inched into the kiosk business with NCR Corp. NCR invested $60 million to get 10,000 kiosks up and running, all bearing the Blockbuster logo. Blockbuster gets a licensing fee for these co-productions, but the exact terms of the deals are not known.

Yet some members of the home entertainment industry maintain that Blockbuster’s brand is actually intertwined with its downfall. They argue that Blockbuster is too firmly associated with renting physical discs, making it appear ill-equipped for the digital age.