Blockbuster Goes Bust

Blockbuster is trying to reorganize itself, but it's probably too late.

In what may constitute the least surprising business news of the day, the company that pioneered the idea of video rental has filed for Chapter 11 Bankruptcy:

Blockbuster, the video rental chain, on Thursday filed for Chapter 11, hoping to slash its hefty debt load and retrench in the face of competition from rivals providing online and mail-based services.

Blockbuster has reached an agreement with its senior bondholders to cut its debt by roughly 90 percent, to about $100 million, by exchanging bonds for equity in the reorganized retailer.

The company’s Chapter 11 petition in federal bankruptcy court lists $1.02 billion in assets and $1.46 billion in debt.

The company plans to whittle its store count down as it seeks to better compete against Redbox, which operates movie-rental kiosks in stores, and Netflix, which mails movies to subscribers and also provides digital streaming. It is also struggling against the likes of Apple, which also rents out movies via its iTunes service.

During the Chapter 11 process, Blockbuster will continue to operate as normal.

If by “normal” you mean slowly treading water until the inevitable collapse, that is.

Blockbuster’s problem is that the whole idea of having to go to a store to rent movies is quickly fading away for most people. Not only are services like  Netflix and On Demand taking that territory over, but so is RedBox. Why drive to your local Blockbuster if you can just pick up a video along with the groceries at Safeway ?

In the long run, Blockbuster doesn’t have an answer to that question. Which is why I think we’ll see them entering liquidation sooner rather than later.

FILED UNDER: Economics and Business, Entertainment, Science & Technology
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010 and contributed a staggering 16,483 posts before his retirement in January 2020.

Comments

  1. Dave Schuler says:

    Wow, what a difference!

     

    I think that Blockbuster is a bellwether.  I think we’re going to see not only an increase in the number of businesses that fail due to a failure of their business model, clearly Blockbuster’s problem, but an increase in the rate at which new business models come into being, skyrocket, and then fail.

  2. john personna says:

    Blockbuster came and went faster than I expected.  Nice to see creative destruction is alive in America.  I would not have predicted that I’d be using Redbox now, over a video store, but before broadband video hit my price/performance point.
     
    I could chock up the latter to the influence of the oppressive state (actually the local government fiefdoms, dependent as they are on maintaining cable-broadband monopolies.)

  3. PD Shaw says:

    Going to the rental store works for me since it’s easier to let my grade school kids pick things out, and we frankly don’t watch many movies anyway.

    Most of the people where I live go or went to a local rental chain that usually charged about half what Blockbuster did.  Sure, the local had dated, thread-bare carpet and bad lighting, but it really was not clear to me what advantages a national chain brought.

  4. sam says:

    Somewhere Schumpeter is smiling.

  5. Zelsdorf Ragshaft III says:

    Interesting, but just a distraction from Christopher Coates testifying before the Civil Rights Commission today.  I wonder how Doug will spin this when the doo doo hits the fan?

  6. Vast Variety says:

    Somewhat comical side note: The advertisement that was associated with this blog entry in the RSS feed when it came through my Google Reader was for Netflix.

  7. Anon says:

    I’m somewhat annoyed by the demise of the video store, since sometimes I want to watch an older movie. Netflix doesn’t cut it for me, since it forces me to anticipate what I’ll want to do a few days in advance.

  8. That’s why online and On Demand services are really where the future is headed. There’s no practical limit to the number of movies that can be made available in this manner, and delivery is relatively instantaneous. The only major limitation right now are studios that hold back old titles from availability.

    I’ve used our cable systems On Demand feature, and the Video On Demand service available through Amazon and TiVo for years. The idea of never having to worry about returning a disc — whether it’s to a store, to a RedBox, or in the mail — ever again is very appealing

  9. PD Shaw says:

    I did watch the first half of “Red River” on VOD last night.  I’m not sure there are a lot of great options yet for the old classics, outside of Turner Classic Movies.

  10. jfoobar says:

    While it succeeds on both price and physical convenience, Redbox fails in selection.  The problem is that now Blockbuster and the like also fail there as well.  Anyone who wished to rent more obscure titles, documentaries, foreign films, etc. had long ago mostly or entirely abandoned bricks and mortar video rental for rental through the mail.  That leaves Blockbuster in the untenable middle ground.
    As pointed out, online streaming (be it on demand or by subscription) is the future.  The continuing issues (increased rates, no more Saturday delivery, reduced staffing) with the U.S. Postal Service will hasten the transition away from traditional rental by mail model that Netflix customers have been enjoying since ~2000.
     

  11. RedBox is good for getting the movies that are on the rental charts, new releases, etc. If you want anything else you’re usually going to be out of luck. Still, it’s found a business model that works — go to any of the stores around here on a Friday night or a weekend and you’ll see parents and kids lined up waiting to pick a movie. Before RedBox, they would’ve been going to Blockbuster

  12. john personna says:

    I’m happy that I’ve got an under-used RedBox spotted, where I can get new releases, and often in BluRay.
     
    My library has long had new releases for $1, it’s just harder to nab them.  The library has a big selection of older DVDs, free for 7 days.

  13. Brett says:

    So Blockbuster is finally biting the dust? I can’t say I’m surprised. Its main competitor in the video rental business, Movie Gallery (which owned Hollywood Video), declared Chapter 7 Bankruptcy back in April, and finally finished liquidating itself in August.
    I figure Blockbuster will be back in court for the same type of thing in a year, if that.