Blockbuster Inc

Blockbuster Movie Stores No Longer a Blockbuster Hit

Technological advancements have outmoded several activities that used to be a part of America’s history. Gone are the days when families used to huddle around the radio listening to the President speak. Gone are the days when friends would make a bag of popcorn and push a VHS tape into the VCR. And now, it seems as though the days when people would get in their car to go rent a Blockbuster movie are dwindling as well.

Blockbuster Inc. filed for Chapter 11 bankruptcy protection this past Thursday. The once prominent movie rental company is being put out of business because many consumers have begun streaming movies directly to their television through media sources like NetFlix. Redbox vending machines can be found all across the city that offer DVDs for a dollar, and more financially conscious movie watchers are taking advantage of the deal.

Through the prepackaged bankruptcy case that has been worked on since the early spring, Blockbuster plans to significantly reduce its debt. The company predicts that they will end with $100 million in debt as opposed to the $1 billion debt it held prior to filing for bankruptcy. CEO Jim Keyes stated to the press that “after a careful and thorough analysis, we determined that the process announced [Thursday] provides the optimal path for recapitalizing our balance sheet and positioning Blockbuster for the future as we continue to transform our business model.”

After competing companies began pulling many regular customers away from the Blockbuster stores, the company attempted to compete by adding some of the new technology to their marketing plan. They began an online streaming program and placed 6,600 “rental boxes” branded with the Blockbuster logo across the nation. The efforts did not have the impact the company had hoped, and Blockbuster was forced to close more than 1,000 stores over the past two years.

The company has been bought out by a number of investment funds that attempt to capitalize on failing businesses. And although the future of the company is unclear, Blockbuster Inc plans to keep their 3,300 stores open and plans to continue with its alternative internet and kiosk strategies.

Source: The Associated Press “Debt, changing media habits topple Blockbuster” Mae Anderson 9/23/10

Colorado-based Dish Network Corp acquires Blockbuster Inc.

Almost a month ago, our blog featured a story on a pending US Bankruptcy Court action for the movie and video game rental company Blockbuster Inc. The national retailer has struggled to compete with new companies such as Netflix Inc. and Redbox Automated Retail. Blockbuster filed for Chapter 11 bankruptcy protection in September, but failed to turn their financial situation around.

Last week, a US Bankruptcy Court judge officially approved the sale between Blockbuster Inc. and Dish Network Corp, a Colorado-based company. At the end of the auction, Dish acquired Blockbuster for an estimated $320 million dollars, with the company expecting to pay closer to $228 million after taking Blockbuster’s current inventory into account.

According to Blockbuster’s legal representation, proceeds from the sale will be used to cover the majority of the company’s outstanding debt. A Bloomberg report stated specific numbers, including almost $180 million dollars to be set aside for senior lenders, in addition to another $10 million for movie studio debts and $20 million for administrative claims.

However, the extent of Blockbuster’s debt cannot be completely covered by the Dish Network sale. Bloomberg also reports that the $320 million dollar settlement will not be enough to pay several of Blockbuster’s secured noteholders and Chapter 11 service providers.

Blockbuster began closing many of its nationwide locations in September as part of its Chapter 11 reorganization strategy, including several Colorado stores. According to the company’s Chief Executive Officer, roughly 1,700 Blockbuster locations will remain in operation at the end of the bankruptcy sale. The CEO did not, however, specify where these locations would be located, leaving the fate of the remaining Colorado locations up in the air.

Source: Bloomberg Buisnessweek, “Blockbuster, Lehman, Vitro, Accredited Home: Bankruptcy.” Bill Rochelle, 8 April 2011

US Bankruptcy Court to hold auction for Blockbuster Inc.

A report has surfaced in the Los Angeles Times, the Wall Street Journal and several other publications that Blockbuster Inc. will auction itself off in U.S. Bankruptcy Court, according to a plan submitted by the company on earlier this week. Blockbuster, which made its fortune renting movies and video games, filed for Chapter 11 bankruptcy in September, but has failed to regain control over its debt.

Blockbuster, like many other video rental chains has suffered serious economic losses since the arrival of competitors such as Netflix Inc. and Redbox Automated Retail. The company has experienced profit loss over the past several years, but recent dramatic losses have forced it to submit a plan for auction. In the last weeks of 2010 alone, Blockbuster reported a net loss of over $11 million dollars.

Several of Blockbuster’s largest creditors have put together a starting bid of $290 million dollars. Neither the creditors nor Blockbuster expect that this bid will go unchallenged. Observers continue to speculate as to which other players will join the bidding, and many believe that Carl Icahn-the businessman who owns the majority of Blockbuster’s debt-will place a bid for the company. However, Icahn has yet to comment on the matter.

While the auction process goes forward, Blockbuster will continue to close stores in an effort to streamline and minimize its expenditures. Reports estimate that the chain will close approximately 600 US stores by the end of the month. Several Colorado Blockbuster locations have already closed, and the future of the remaining sites is yet unclear.

Source: Los Angeles Times. “Blockbuster to put itself up for sale.” Ben Fritz, 21 February 2011.

Update: Blockbuster Will Honor Discount Programs with Bankruptcy Loan

In a prior post entitled Blockbuster Movie Stores No Longer a Blockbuster Hit, we mentioned that Blockbuster Inc. had filed for bankruptcy protection in mid September. The advent of technological advances like live video streaming and the arrival of companies such as NetFlix and RedBox have outmoded the traditional Blockbuster Inc. experience of going to the store to rent a video. The change in consumer behavior caused the financial hardship for the well known movie rental store.

Today, October 28, 2010 Blockbuster finally received the official approval allowing them to accept a $125 million loan. The loan will facilitate continued operation of the company while going through the bankruptcy process. The loan granted to Blockbuster is called a “debtor in possession” loan often referred to as a “DIP loan.” DIP loans assist business while they are in bankruptcy by providing necessary and immediate funding for daily operations like paying employees during the reorganization process because their pre-bankruptcy liabilities are frozen once they file for Chapter 11 bankruptcy protection.

Blockbuster has announced that they will be able to continue to honor consumer discount programs such as the “Rewards” program, coupons and gift cards now that they have received approval for the bankruptcy loan. Jim Keyes, CEO of the company said that the company is “pleased that the court has granted these final orders… we continue to work diligently with our senior noteholders, the movie studios, the unsecured creditors committee and other key parties on our recapitalization plan, which, when implemented, will strengthen our balance sheet and allow us to continue transforming our business model.”

Blockbuster will be required to produce a business plan and have it approved by November 30, 2010. On that same day, a copy of the description of the company’s reorganization terms will also become due.

Source: The Street “Blockbuster Bankruptcy Loan Approved” Jeanine Poggi 10/28/10