Blockbuster Bankruptcy Blues Explained

(Aug. 27) -- There's no rewind button for Blockbuster.

According to a report from the Los Angeles Times, sources close to Blockbuster Inc., the formerly dominant home video rental outlet, are indicating that the company will file for a "preplanned" September bankruptcy claim. "Preplanned," of course, suggests a certain level of inevitability and expectation to the news.

But how avoidable was the big blue ticket stub's fate, and just where does Blockbuster stand now? Surge Desk answers these questions, offering the four key points to know about the Blockbuster bankruptcy.

How bad is it?
Blockbuster was worth an estimated $8.4 billion when Viacom purchased the company in 1994. Today, the one-time video rental giant trades at 11 cents per share, has been delisted from the New York Stock Exchange, closed nearly 1,000 stores last year and is worth approximately $24 million. Since 2008, the company has reportedly lost $1.1 billion and has managed to continue operating with $980 million in debt.

What happened to Blockbuster?
Compared with the success of competitors like streaming and DVD delivery based Netflix, which in 2009 generated $1.67 billion in revenue, and kiosk-style "video vending machine" services like the Redbox $- a-night DVD rental chain, which in 2007 surpassed Blockbuster in total U.S. locations, Blockbuster has been a struggling enterprise running under an outdated business model.

Netflix has for a while now seemed poised to dominate the American movie rental industry, by offering films instantly streaming (as in, no downloading, just watching live from the site) over computers, video game consoles, and, as of this week, mobile devices -- but this bad Blockbuster news sure seems to seal the deal. Unless, of course, you are Blockbuster CEO Jim Keyes.

In a recent interview with Fast Company's Austin Carr, Keyes reflected on the Blockbuster position with respect to Netflix by stating, "We have such different business models," Keyes said. "There is a wonderful role for Netflix service in the marketplace, but it's very different from ours. I think we co-exist quite well with Netflix."

Carr's analysis of the comment: "Netflix had nothing to do with Blockbuster's demise? That blindfolded answer demonstrates how unaware the company may have been (willfully or otherwise) to its competitors."

Fast-forward: What is the plan for Blockbuster?
By filing for bankruptcy while simultaneously maintaining a good relationship with the studios, Blockbuster executives hope to escape many of the leases on some of its poorest performing stores and restructure the company's business model. This move would involve shifting focus toward Redbox-style kiosk and online based rental services.

By taking a preplanned bankruptcy, the L.A. Times explains that Blockbuster would create a scenario where "most but not all creditors would be on board ahead of time, including senior debt holders and content suppliers."

Overall, the biggest losers are the building landlords, store employees, and the small debtors of the company who will likely not receive any significant ownership rights when all is said and done.

Who still rents movies from Blockbuster, anyway?
Blockbuster does remain a preferred customer of the major studios, maintaining the ability to offer rentals the same day a movie goes on sale, while its competitors are forced to comply with a 28-day waiting period, at least for now.

Also, according to Susana Polo over at Geek-o-system:

The studios have an interest in accommodating Blockbuster because competition in the rental video market is good for them, and there's been less of it with the folding of Hollywood Video and the dominance of Netflix. The studios want companies that will compete to pay them the most for DVDs and digital rights.