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Re: Blockbuster is 'bleeding to death'
NEW YORK (CNNMoney.com) -- Blockbuster is in a heap of trouble with nearly $1 billion in debt, and its latest fixes might not be enough to keep the company from filing for bankruptcy.
The movie rental company launched its newest enterprise on Wednesday, beating rival Netflix to the punch in mobile movies. Blockbuster is now offering on demand video via T-Mobile's new HTC HD2 smart phone. The new service is also expected to be available on Android and Windows Mobile phones soon.
That news follows the company's announcement on Tuesday that it signed a new agreement with movie studio Warner Bros., which is owned by CNNMoney.com's parent company Time Warner (TWX, Fortune 500). The deal will continue to allow Blockbuster to offer the studio's new releases about a month before its chief competitors, Netflix (NFLX) and Coinstar's (CSTR) Redbox.
Blockbuster's latest moves are steps in the right direction. But to overcome nearly $1 billion in debt, unprofitable stores and continued losses, what the company really needs is a major turnaround. Blockbuster said last week it may have to file for bankruptcy protection if it cannot lower its debt by other means.
"Blockbuster is trying to keep itself from bleeding to death, but they're putting on a lot of Band-Aids," said Michael Pachter, Blockbuster analyst at Wedbush Morgan Securities.
Blockbuster (BBI, Fortune 500) did not return multiple requests for comment.
Struggling for survival
Blockbuster has been saddled with massive debt since media conglomerate Viacom (VIA) spun the company off in 2004. As part of the deal, Blockbuster had to pay Viacom shareholders a $5 per-share dividend, and the movie rental company accumulated about $1 billion of debt in the process.
At the time, the company was making profits of about $500 million a year, so Blockbuster assumed that it would be able to pay down that debt quickly. But questionable business decisions -- like canceling all late fees -- ate into the company's profits.
So did Netflix.
0:00 /0:56Know what you're not doing
As Netflix's movies by mail and streaming video services began to catch on in the last decade, Blockbuster was unable to catch up. By the time Blockbuster's competing service, Blockbuster Mail, launched in 2004, Netflix had already been around for six years and had became synonymous with movies by mail.
"Asking if Blockbuster can compete with Netflix online is like asking if Best Buy can compete with Amazon online," said Pachter. "The answer is no. It doesn't matter how well capitalized you are, if the branding isn't there, you're not going to be able to compete."
Blockbuster is also taking aim at Redbox, launching a new partnership with NCR to place 10,000 DVD kiosks around the country by the end of the year. But competing will be difficult: Redbox already has 20,000 kiosks in place, and the company's revenues rose a whopping 99% in 2009.
Solutions
Despite its failure to catch up to the competition so far, Blockbuster may not be a lost cause.
While rumors continue to circulate about a Netflix iPhone application, Blockbuster got to market first today with mobile movies. The new service allows users to download movies to buy or rent, similar to Apple's (AAPL, Fortune 500) iTunes service. Eventually, customers will be able to watch a movie on their phone, and then pick up where they left off on their Blockbuster On Demand enabled TV or Blu-ray player.
Analysts applaud Blockbuster for trying the new venture, but they say its impact will be minimal. Pachter said he expects the company's mobile service will add no more than $5 million to Blockbuster's revenues. Last year, Blockbuster lost $355 million on revenues of $4.1 billion.
To solve its debt problems, Blockbuster has to get its core in-store retail business stabilized. One way the company is doing that is by continuing to shut down underperforming stores. By the end of the year, the company will operate about 3,000 stores in the United States, down from about 4,500 at the start of 2009.
But analysts say the deal with Warner Bros. is the most encouraging news the company has had in a while. In addition to giving Blockbuster a one-month head start over Netflix and Redbox on new releases, the terms of the deal will also ease the company's financial strain.
"There's still demand for physical video stores, but that will go away if Blockbuster were to fail," said Charles Wolf, Blockbuster analyst at Needham & Co. "The movie studios realize that, and they realize that there is an important role to be played by Blockbuster's stores."
Though the financial terms of the deal weren't released, Pachter said the revenue-sharing agreement will allow Blockbuster to pay less money up front for its inventory of movies, and in turn, it will give Warner Bros. a higher percentage of revenues from the rentals.
"That's the right idea," Pachter said. "Blockbuster will gladly sacrifice profitability if they can have more cash up front to pay down their debt."
- monkeychow
- Rep: 661
Re: Blockbuster is 'bleeding to death'
As broadband gets faster i expect we'll see the end of dvds like we have the end of CD sales. It's quite a worry for the creative industries.
Re: Blockbuster is 'bleeding to death'
As broadband gets faster i expect we'll see the end of dvds like we have the end of CD sales. It's quite a worry for the creative industries.
Yep. Both downloading & storage space. Pretty soon a whole DVD colloection will be stored onto an ipod sized mechanism. Smaller than a DvD player, yet holds 100 or movies or so. Bring it over to a friends house & hook it up to their HDTV too.
Re: Blockbuster is 'bleeding to death'
Nearly every industry is, or could be, obsolete soon. Technology has progressed so far, so fast, that everything from energy to transportation to entertainment is just stringing it out til the inevitable happens. We'd already be riding bullet trains run off of wind power while watching new releases on our flatscreens if big corpartions didn't have to figure out how to make this happen without going broke & destroying our current economy.
- Communist China
- Rep: 130
Re: Blockbuster is 'bleeding to death'
Blockbuster stocks a wall full of National Treasure 2 but doesn't carry many older films. In my recent (unpleasant) experiences in their stores their comedy section, besides their new sections, is just a bunch of cheap straight-to-DVD type titty comedies and I rarely find what I'm looking for.
If they had a wider selection and didn't bother with new releases they might be able to fit into a niche market someday. But much more likely is that they will be wiped out.
Re: Blockbuster is 'bleeding to death'
one dumb thing about blockbuster...one day i had 2 movies rented right so i called and said i wanted to return one and keep one that i hadnt had the chance to watch and he said it was a buck a day to keep it longer...so cool i returned them and said i wanted one for an extra day...so the dumb bastard charges me full price and i said wtf you told me it was a buck on the phone .... he said its a buck if you return it late but you returned it on time and are now renting it again...i said how does that even make sense,,,i'm an honest guy so i get screwed...instead if i was a douche and just kept it i get a better deal? that makes no fucking sense...so eventually he jsut gave me a free rental 
i was willing to pay the buck but free is good too...i think that he jsut wanted me to stop making a scene though and go away...ah well works for me 
Re: Blockbuster is 'bleeding to death'
Blockbuster stocks a wall full of National Treasure 2 but doesn't carry many older films. In my recent (unpleasant) experiences in their stores their comedy section, besides their new sections, is just a bunch of cheap straight-to-DVD type titty comedies and I rarely find what I'm looking for.
If they had a wider selection and didn't bother with new releases they might be able to fit into a niche market someday. But much more likely is that they will be wiped out.
In BB's defense there hasn't been a good "original" comedy in 20 years, short of maybe Borat or The Big Lebowski. I guess you could stock your comedy section with classics like National Lampoon's Vacation or The Blues Brothers or Stripes or Blazing Saddles or Smokey and The Bandit (whatever your poison), but why go rent those same movies for $3-4 bucks a night, when you can find them in the Wal-Mart bargain bin for $5 bucks to own? That kind of shit right there has destroyed BB. I think there's much more of a marketable interest in the classics than anything recent. If today's comdies pass as "comedy" these days, give me a bullet and a working gun.
one dumb thing about blockbuster...one day i had 2 movies rented right so i called and said i wanted to return one and keep one that i hadnt had the chance to watch and he said it was a buck a day to keep it longer...so cool i returned them and said i wanted one for an extra day...so the dumb bastard charges me full price and i said wtf you told me it was a buck on the phone .... he said its a buck if you return it late but you returned it on time and are now renting it again...i said how does that even make sense,,,i'm an honest guy so i get screwed...instead if i was a douche and just kept it i get a better deal? that makes no fucking sense...so eventually he jsut gave me a free rental
Oh yeah. Totally dealt with that illogical shit back in the day.
We forgot to take one back once (rarely if ever happened), and it was weeks and weeks overdue, and I called up BB and told them the situation, and that it was an honest mistake, and that if they'd look for the history of our account, that we'd never been late. I told them I liked the movie enough, that i'd just buy it from them. I felt at the time that it was an honest solution, that it would make up for the film not being at the store, and i'd just purchase it.
They convinced me to come in, because they needed to take the movie "off the list" or something like that.
So I come in, and this joker proceeds to charge me $95 for a rental VHS. And I did a double take. I thought I had misheard. He said that would be $95 and some change. I looked at him and said, "why that high?" He said because it was a rental. I turned over my shoulder and pointed out their "buy new" rack and said that's the same movie right over there for $19.99. Why would I pay $95 bucks for something I could buy for $20? He proceeded to tell me that I had a rental VHS, and that was different (same movie, both VHS), and that it was $95 dollars because of the previews on the front of the movie. There's more than the private VHS. I said, "so you're telling me with a straight face that i'm paying $75 bucks for 4 previews on the front of this movie". He didn't say anything.
I then gave him the movie, and went to walk out. He said that BB wouldn't let me rent again until that fee was paid (it was nearly $30 dollars), and I told them "you'll never have to worry about me ever renting anything from here ever again".
I never returned to a BB.
