updated 08:20 am EDT, Thu September 23, 2010
Blockbuster in Ch. 11 bankruptcy to focus online
Blockbuster this morning followed through on expectations and filed for Chapter 11 bankruptcy as part of its shift into online video. The move gives it an opportunity to reorganize and would exchange the company's 11.75 percent in senior notes for equity stakes. Refinancing, cost cutting and other measures would reduce the movie rental store's debt from $1 billion to $100 million or less.
All retail and online businesses should keep running during the bankruptcy period, the company said. Stores outside of the US shouldn't be affected by the plans.
The filing is expected to help "transform [Blockbuster's] business model" and help it focus on Internet sources by reducing its dependence on retail. In-store rentals were once its cornerstone, but the market for renting by title has been gutted by faster-moving Internet rivals. Netflix is usually given primary credit, as its mail-order but Internet-based service is both much less expensive than renting from Blockbuster but gives access to a much wider catalog that is often impossible to match in a retail store. Blockbuster was forced to introduce its Direct Access service and flat-rate service to match.
The company has also had a poor standing versus direct Internet streaming. Although it has an online service of its own, the platform has a much smaller footprint on hardware than Netflix and struggles to gain recognition compared to iTunes, whose service has the advantage of working on iPads, iPhones and iPods for years where Blockbuster has only recently reached mobile through Android.