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Thursday, 12 August 2010 10:27

Blockbuster could go bankrupt

Written by David Stellmack


Forced to make changes to survive
Despite the announcement that Blockbuster will start offering video games as part of its postal rental model, the company is still apparently in deep financial trouble. This follows Blockbuster being delisted by the NYSE in early July.

Blockbuster has made a number of moves since the delisting, including getting a forbearance agreement to delay a reported $42 million in interest payments. Now, the company is going to need additional extensions to recapitalize in order to avoid filing for actual bankruptcy. Creditors are said to already be pushing for Blockbuster to accept a Chapter 7 filing.

The pressure and change from the traditional retail rental model into a number of other models has not translated well for Blockbuster. The company was slow to adapt to changes, including cheap kiosk rentals, postal rental and streaming media. The company is finally engaged in all three of these, but is apparently not very successful at any of them yet.

Analysts that we have spoken with expect Blockbuster to announce the closing of more retail units, a bigger push on the postal rental business, continued growth in the kiosk rental business, and aggressive growth in the electronic/streaming business as their plan moving forward. It might be hard, however, to close many of the retail locations, according to those we spoke with, due to long leases with no ‘out’ clauses.

No matter, it appears that anyway that you look at it things are going to be tough for Blockbuster; and they have a tough road ahead with a lot of changes of they are going to return to profitability again.

David Stellmack

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