Studios may tighten credit on Blockbuster, force bankruptcy

Blockbuster's credit may be no good in Hollywood anymore.

Major studios are looking to cut off credit for the DVD renter and retailer, which could potentially push the struggling company into bankruptcy.

Blockbuster disclosed the looming threat in its annual report, filed with the Securities and Exchange Commission on Tuesday.

"Given our liquidity limitations and uncertainty surrounding our ability to finance our obligations, we are currently in discussions with several of the large studios regarding the credit terms for our inventory purchases," the company said in its filing. "If the studios tighten their credit terms or if studios eliminate their provision of credit to us altogether, this could result in up-front cash commitments that we may be unable to sustain on a long-term basis."

Blockbuster then added that if the studios go through with their efforts to tighten credit terms and its financial situation doesn't improve, bankruptcy is a possibility.

"Should we not be able to generate sufficient cash flow from operations and should the studios tighten or eliminate credit terms," Blockbuster said, "we may determine that it is in the Company’s best interests to voluntarily seek relief through a pre-packaged, pre-arranged or other type of filing under Chapter 11 of the U.S. Bankruptcy Code."

During the quarter ended Dec. 31, Blockbuster's same-store revenue dropped 14.7% and it reported a net loss of $434.9 million.

Last year the company shut down 586 stores worldwide, including 353 in the U.S.

--Ben Fritz

Comments

[eb]

Its only a matter of time before Blockbuster is wiped of the face of the earth, as will Itunes and Netflix some day........

[Steve]

It's not rocket science... Blockbuster is losing customers because THEY CHARGE TOO MUCH! More than double what Netflix charges. Lower the prices, make it up on volume.

[Carol]

eb @ 11:16 - Anyone selling physical DVDs or CDs might be out of business, but iTunes and the streaming part of Netflix are the future. There just needs to be competition to keep prices down and accessibility across hardware platforms up.

[jkon]

Why would such a profitable company standby and watch others go online while they do nothing? Now nobody wants to go to their store and pay $5 for a dvd they can rent on the couch for the same price or use Redbox for $1. So long Blockbuster..

[The.Watcher]

Well. That sucks.
I haven't actually rented anything there for a long time....but it's always been there, in my neighborhood... like a beacon of blue and yellow light.

Ay, the times - they're changing.

[Matthew]

Its not just that they charge too much, but they can't seem to settle on a price structure. Right now they charge one thing, six months later they charge something totally different.

There is also Red Box. Red Box is awesome.

[mr q]

It'll probably be another 18 mo before they liquidate, but damn, I'm surprised at how long a company can last without making money.

[lisa]

The last time I went to Blockbuster was 1999. The reason? The late fee for being one day late was equal to the rental fee for 3 nights. So, I paid double. For a little more than that, I could have bought the dang thing.

[Matt]

My neighborhood has a Family Video. I haven't seen the inside of a Blockbuster in at least three years. FV is the best kept secret in movie rentals, those guys are awesome and dirt cheap. Here's hoping they move in to fill the void.

[Robb]

Netflix streaming may be the way of the future, (or streaming in general), but if Netflix doesn't improve their availability of disc rentals, they will be out of business soon too. I can't believe someone hasn't sued them yet for not upholding their end of the customer contract.

[I don't thin...]

I don't even rent from Blockbuster, but there are some obviously wrong posts here:

Go online while they do nothing? Blockbuster has gone online.

They charge more than netflix? Shouldn't they? I mean, with Netflix you can't watch them the day you order them, and you mail them back yourself. If you have a problem with the disc, you can bring it back and still get in your movie for the night.

Netflix is the future? No. Digital distribution is. Netflix is just a transition phase.

[ISUSEM]

"Netflix is the future? No. Digital distribution is. Netflix is just a transition phase."

Apparently you are not a Netflix customer. They have been increasing their digital presense for some time. Currently they are betting the farm, including agreeing to longer periods before new releases become available to open up more titles for digital streaming.