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Blockbuster tells Hollywood studios it's preparing for mid-September bankruptcy

BlockbusterStore1 After dominating the home video rental business for more than a decade and struggling to survive in recent years against upstarts Netflix and Redbox, Blockbuster Inc. is preparing to file for bankruptcy next month, according to people who have been briefed on the matter.

Executives from Blockbuster and its senior debt holders last week held meetings with the six major movie studios to discuss their intention to enter a “pre-planned” bankruptcy in mid-September, said several people familiar with the situation who requested anonymity due to the sensitivity of ongoing talks.

Blockbuster is hoping to use its time in Chapter 11 to restructure a crippling debt load of nearly $1 billion and escape leases on 500 or more of it 3,425 stores in the U.S. Maintaining the support of Hollywood's film studios during the process will be critical so that Blockbuster can continue to rely upon an uninterrupted supply of new DVDs.

Blockbuster has lost a total of $1.1 billion since the beginning of 2008 and has been severely hamstrung in efforts to grow its business due to interest payments on $920 million in debt. Earlier this month the company announced that most of its debt holders had agreed to a forbearance on interest payments until Sept. 30, during which time it would attempt a recapitalization.

Last week Dallas-based Blockbuster's chief executive, Jim Keyes, came to Los Angeles to hold individual meetings with executives at studios including 20th Century Fox, Paramount Pictures, Sony Pictures, Universal Pictures, Walt Disney Studios and Warner Bros. He was joined by a team of restructuring consultants hired to help turn around the struggling company, along with its senior debt holders who would likely end up owning a substantial portion of Blockbuster following bankruptcy.

Former Sony Pictures home entertainment president Ben Feingold, who is serving as an advisor to the debt holders, was present as well.

Though its plans are not yet set in stone, people knowledgeable about the discussions said the Blockbuster representatives presented a mid-September bankruptcy as the most likely scenario. It would enter what is known as a “pre-planned bankruptcy,” meaning most but not all creditors would be on board ahead of time, including senior debt holders and content suppliers.

One of the primary goals of the bankruptcy process, which the company said it hopes would last about five months, would be to escape costly leases for some of its worst-performing stores. Though Blockbuster hasn’t decided exactly how many locations it would seek to shutter as part of a bankruptcy, executives told the major studios it is looking at between 500 and 800.

Blockbuster closed nearly 1,000 stores in the last year alone, a reflection of consumers’ rapidly declining interest in renting DVDs from retail locations now that they can rent them from ubiquitous kiosks in grocery stores, in the mail, or via the Internet.

If it successfully exits bankruptcy, Blockbuster has told Hollywood studios, it hopes to grow through non-retail initiatives. Kiosk manufacturer NCR Corp., for instance, has already deployed about 6,000 Blockbuster-branded kiosks that, like Redbox, rent DVDs for $1 per night.

The company also hopes to expand its presence in the still nascent digital distribution space, through which a growing number of customers are downloading or streaming movies on computers, Internet-connected televisions, and mobile phones.

Most studios are believed to be supportive of Blockbuster’s efforts, as they want to see it remain in business as a viable competitor to Netflix and Redbox, particularly since the formerly second-largest DVD rental store, Hollywood Video parent firm Movie Gallery Inc., went out of business in April.

But there are still some issues to be resolved, including the company’s desire to continue offering movies from all the studios on the same day they go on sale. Fox, Universal and Warner have all instituted a 28-day window on rentals through Redbox and Netflix.

The studios would likely be protected from any significant losses on payments Blockbuster might owe them at the time it files for bankruptcy under the proposed plan. But they would lose revenue from any stores shut down.

The parties most impacted would be Blockbuster’s junior debt holders and the landlords of leases that would be canceled under the proposed bankruptcy. It remains to be seen whether they would attempt to challenge a plan that left them with a fraction of what they are owed.

If the company does not enter bankruptcy, it would need to find a new investor or convince its debt owners to significantly reduce its interest payments for the foreseeable future.

A Blockbuster spokeswoman declined to comment on the studio meetings. In a statement, she said, “The extension of our forbearance agreement is a strong sign of support from our senior secured noteholders as we work toward putting in place a more appropriate capital structure to support Blockbuster’s long-term growth. … Our discussions continue to be productive and we have every reason to believe we will come out of the recapitalization process financially stronger and more competitively positioned for the future.”

Blockbuster stock, which last month was delisted by the New York Stock Exchange because of its ongoing low price and moved to the over-the-counter market, closed Thursday at 11 cents. The company’s total market value is $24 million.

In 1994 it was acquired by former owner Viacom Inc. for $8.4 billion.

--Ben Fritz

Photo: A Blockbuster store in Dallas. Credit: Ron Heflin / Associated Press

 
Comments () | Archives (121)

They never paid any of their employees good, so what do customers expect? Customers were just as bad about lying about returning their product as much as the underpaid employee was about lying about what time it was checked in! Blockbuster has underpaid employees who work alone all day (without a break! or lunch!) and have to deal with people stealing and/or robbing them, on top of lying about returning movies...Im on both sides about this whole thing. I think the company big whigs didn't know anything about the business because they didn't work in the 'field'. They didn't have to put up with the customers who felt like they were better than us employees. We were hard working employees getting crappy pay, (not out there robbing people)...just trying to make a living. I feel sorry for the employees that have worked many years for this sorry company that are going to get shafted...but for those people that keep commenting about how blockbuster would send them to a credit agency, I have to laugh at this...there was NO credit agency! It was a company that worked for Blockbuster to scare you to get your money. At no point did a 4 dollar late fee affect anyone's credit or cost them points to their score! I worked there almost 14 years and never once did I see a customer not be able to get a house or a car because of a late fee. I had numerous customer's swear on their kids they returned their movies, only to call me back and apologize for not looking 'under the couch.' I had numerous times where I myself misplaced a movie or it didn't get checked in correctly due to human error...it happens. The only thing that bothers me the most about this, is the fact that I have good friends that still work for this ungrateful company who are going to be out of jobs...other than that...Good Riddance.

you go Amanda!!! props. :)

@ Steve..."THE PROBLEM IS BB APPLIED LATE FEES ILLEGALLY"....I would personally like to know if You ever worked for the company and how exactly do you know and/or can prove that they did this? I, myself never tacked on a late fee nor do I know of anyone in my store that worked under my supervision or even in my entire district did I ever hear of anyone applying late fees to customer's accounts! If you didn't work for the company then you would obviously not know that we were audited and we had to be at a certain percentage in each store and we were held accountable for any late fees that were removed...we were told not to argue with the customer, but at the same time we had no choice but to take in fees otherwise (we), as store managers would get written up! If you didn't work for the company, then for you to sit there and act like you know how (or think you know how) the company worked...i.e. the computers and how the employees would tack on late fees to random people...to me, you just seem like you might have had an issue with a store that was not resolved the right way or to your satisfaction so instead of taking it to the store manager or their supervisor, you want to basically say that WE tacked on late fees illegally? Now, had you walked into my store and berated myself or my employees with this kind of attitude then you probably would have been treated the same way...they were underpaid and had minimal hours and very little training (due to BB's policies). I would not expect for any of my employees in any business to sit there and take any form of abuse...you treat people, the way you want to be treated...and obviously you want to be treated like crap. I, personally hated the late fee policy, but considering that I needed a job and I had to put food on my table and a roof over my kids heads...it was something that you just dealt with. It wasn't the best part of the job. I am not sitting here defending BBV and their policies by any means. I didn't agree with alot of their policies, but like any employee, we sucked it up and did the best we could. I can sit here and name at least 100 things that sucked about BBV, but I can also sit here and thank BBV for dishing out a check to me every 2 weeks. I loved my job. I loved my employees, and I loved my regular customers and the perks of working for the company. I will miss them but I most certainly won't miss the customers that acted like we (at the bottom of the totem pole, peons) owed you anything...

We moved to Blockbuster years ago because it had a far superior web site and easier to navigate pages. We gave Netflix the thumbs down after our neighbor repeatedly had movies available to watch which we could never find on the Netflix site. Exchanging movies at the Blockbuster store is always an added bonus.

Still, when Netflix premiered movies for your Wii and other Net ready devices I think we are tired of waiting for a response from Blockbuster. Movies for your Verizon phone? I don't think so.

The article failed to mention VOD which a lot of families use nowadays instead of that annoying errand of returning movies to the store.

We'll see how it turns out. I feel sorry for the landlords who are going to get burned.

To Ex BBV employee-

Not that I have to defend myself to you but let me explain a few things to you buddy. I always treat people with respect...especially working people. ALWAYS. It is not until they cross the line do I harden my attitude. I rarely have problems with businesses and I rarely complain. If I don't like a business I simply stop doing business with them. So for you to presume I am one of those people that I don't like either (that treat working people unfairly and are rude from the get go) is pretty funny for me.

You ask me if I worked for the company. In the same paragraph you mentioned you had to apply late fees and were dinged if you took off too many late fees.

I don't need to work for a company to know when I am being scammed. Don't you find it odd my friend that whenever there is an error it is ALWAYS in the companies favor and never in the customers favor. They seem to have all sorts of systems is place to catch errors that would benefit the customer but never to catch "errors" that benefit the company. I've told my story already so in short in case you are too busy "giving props to Amanda" to read my story I mentioned I wrote down the times I dropped it in the drop box. This happened 3 times. The 3rd time is when I had to argue with the manager because this was the 3rd time they were treating me like the criminal when I did nothing wrong. THEY began with the snooty attitude. THEY acted like they were doing me a favor by RELUCTANTLY removing the late fee. THEY gave the attitude first. I then canceled my account and vowed never to do business with blockbuster again which I can proudly say I have not done since 1999.

People like you (and Amanda) perplex me. I'm in my early 40's and have done well. However, I too started out working underpaid and overworked. WHO CARES. It's a story that can be told a million times. I always figured what the heck...I'm here...I might as well have fun on the job...why make it more miserable by being negative to customers...unless they were unduly hostile. I never took it personal. Once the customer left I forgot about it and moved on. But you and your ilk seem to feel entitled to a blissful experience that is well paid. I don't want to discount the fact that I am aware American consumers have become more obnoxious within the last 15 years or so, however, so have employees like you....and when you mistake me being cool to you for weakness and want to take out your bad day on a cool customer....well then I too turn on you as well.

Anyway...I'm getting off track. The point is the reason there are so many people taking joy in BB demise is because they are evil. And now they are exposed. Would you blame the customers of EZ Lube who would rejoice in EZ Lubes demise despite the fact they have been busted repeatedly for ripping customers off and former employees have said their business plan relies on them ripping customers off...that they must bill at least 60 dollars per car....quite a stretch from the 20 dollars they advertise isn't it?

People are sick of it amigo. The internet has a way of exposing the bad apples now. I commend those who have written in. I can't wait to see BB fall. They deserve it. You need to stop being so defensive and giving "props to Amanda who laughs at customers" and realize you too are a consumer of a company who is probably ripping you off think how you would feel when you hear that company is finally getting justice.

In short. Grow up

You go Steve!!! Props!

I'm glad to see BB go. I made my choice 6 years ago by switching to Hollywood Video. The employees were awesome and their rental plan was fantastic. When HW Video began to have problems they changed the program and you had no choice but to switch. It went from unlimited rentals to a points program. For frequent renters like my family this meant less movies per month for the same price. No thanks.

When the change occurred I decided to check out Blockbuster. They couldn't compete with NetFlix. I agree that it sucks waiting an extra day or two but that's something I can deal with knowing its a fair price point.

I am a little sad that another "American Institution" will be disappearing from the landscape but it is a lesson in continuous product improvement. Innovate or die.

I own a video store and BB is my competitor. I have mixed feelings about their financial troubles. If their stores close I will get new customers, but if people perceive that DVDs are history then it might ultimately hurt my business.

Regarding the late fee issue. People who subscribe to Netflix or rent at redbox are paying for privilege of holding DVDs beyond a standard length of time. They don't call it a late fee, they call it a subscription fee or an extra day fee. What difference does it make what it's called?

@ Steve...really, grow up? lol. I am happy to debate all day and never once did I completely blame the customer...for someone who has to tell me how old he is...really? I am also getting close to my 40's. Good for us. Don't take it so personal...It's a blog. Its an opinion...and this is America. You have the right to yours and I have the right to mine. Its great! 1990's is a long time to hold a grudge...Live life, be happy and get over it.

I am shocked every time I see a video store that's still in business. Who could have predicted that the U.S. Mail and vending machines would be instrumental in their demise?

I can't believe how idiotic some of these posts are!
example 1. Complaining about late fees! Seriously? Its a rental, let me say it again! RENTAL company! If you keep your rental car late, they charge you, why wouldn't blockbuster? You RENTED it, you did not buy it! Get a clue!
Also, complaining about the movies they carry! Seriously? Thats just idiotic in itself! They did not make the movies! Talk to the movie studios!
I agree with only 1 point, they should have lowered their prices sooner but with what the movie studios were charging them to buy movies ahead of time, they had no choice but to keep it some what higher.
It ultimately is going to be costumers ridiculously high demands that puts them under. With anywhere from 10-30 employees a store, thats another 70,ooo peopel unemployed and thats just at the store level. It doesnt include how it can effect delivery companies, candy companies and the studios.
All over greedy customers unwillingness to return movies on time and complain about ridiculous things! You are the greedy ones, not Blockbuster.

Good riddance! I always founds Blockbusters to be poorly stocked, poorly staffed and overpriced. In many parts of Canada Blockbuster has struggled against a Canadian rental company, called Rogers, which is much more popular. Rental stores definitely still serve a purpose, but the companies need to realize that the industry is changing, and people simply won't pay $7 to rent a dvd when they can rent it for $1 from a booth!

Now, I am a current employee of this demonic company. I know both sides of the debate. I only work there because my insurance is through them currently. Otherwise, I would have left when my first store closed. I was relocated. To defend this company, this is a rental company. You have it for 5 days for $5. So a dollar a day, if you watch it in one day and return it that is on you. Also, we do have people lie to us all the time and rob us all the time. So guess what, that cause fees to go up. You are all talking about how rude employees are. Yes, most are. Not all of us are, but look at it like this. If you are being paid minimum age and not receiving any sort of compensation or raise for upselling, why would you really give a $hit. I know people, including myself, who have been there 2 or more years and not received a raise once. That is flat out wrong. When I worked for Michaels, I received raises every 6 months and got a yearly raise. So if you have people lying to you to not pay a late fee balance, it can be annoying. To the idiot that said he shouldn't have to pay for returing a movie 2 months late, WTF dude!!! It is 2 months late, ofcourse you have to pay something; stop being cheap. Now on the other hand, they missed the prime window for kiosk and online rentals. If they were smart, they would've jumped on that bandwagon years ago and had a total monopoly. The company has done this to themselves and deserve to suffer for it. I know people who use to work at Blockbuster and would NEVER recommend anyone work there. Now I see why. Management has been trying to sell anything they can inorder to boost profits. I mean sunglasses and pickles, really? O_o. They are looking at whatever they can, why don't we just sell weed and crack. They would make more. I work in a prime metro area and on weekends we use to be busy. Now, not so much. Weeknight, store looks like a ghost town. Thats a red ring of death for you BBV. I knew this was coming along time ago, luckily for me I have a day job.

Blockbuster will more than likely not survive a chapter 11 and end up in chapter 7 as a total liquidation. How they got so big when they are so poorly managed is an interesting mystery. Anyway, there are some things they can do that might help them emerge from a chapter 11 filing. If you are interested, see my most recent blog post on what Blockbuster should do to survive by going to www.dolf-politicsandsocialcommentary.com.

I kind of saw this coming when they closed two stores close to my home, one in my hometown and another one up the road, within 6 months of each other. Then, they also decided to send me to collection court for a movie I returned. So, I must have rented 3 or 4 movies since then from a store that is still open 15 minutes from where I live. It's funny though, Blockbuster basically run out all the other smaller video rental stores when they arrived to my hometown 14 years ago, so I got nowhere to rent here where I live. I gotta drive 15 to 20 minutes just to rent a movie. Might as well go to the movie theater to watch a movie.

I would hate Blockbuster to declare bankruptcy because I have a one out at a time movie-pass with Blockbuster. I pay 22.95 a month for the movie-pass and can get any movie for free just like NETFLIX.

Then you're paying too much. It is time to use up those Blockbuster gift cards on those outstanding late fees so that you may abandon Blockbuster entirely so that economic progress may resume.

For those folks waiting for Blockbuster to go out of business.Think about this....how many people will lose thier jobs? how many people will go without medical insurance,how many people will not be able to pay thier rent or will be forced to foreclose on thier home...post service issues and concerns BUT GROW UP and stop wishing the company goes out of business.

Everyone complains about "late fees" but they fail to realize that the charges are THEIR OWN FAULT! Be responsible and return your movies on time and you wouldnt have any fees! Movies have to go back in order for others to have something to rent. If you keep them for a month how many rentals were lost due to your inconsiderate, irresponsible behavior. Put blame where blame is due, on you for not being a responsible person!

I have been a manager at Blockbuster for 8 years. I love my job and am so sad to see this happening. I have read a lot of comments from several of you bashing this company. In my area there are 2 stores. We pride ourselves in great customer service. If any of you have received bad service, I apologize. We are certainly not taught that in our training. I can't speak for every store but I can tell you that losing our store will sadden a lot of customers in our area. We are a crew of 10 and have all been with this company for 8 years or longer. Our regular customers love coming in to see us, visit, and find out what the best new titles are. All of you haters are EXACTLY the type of customers we love to lose. You know the ones that cant rent at any other video store because of their late fees so they come to us to start a new account. Imagine that... then they acrue late fees with us and bash us for turning them over to collections... hmmmm... Maybe some of you are t blame for the demise of this company... All of the product that you never return and we have to write it off.(I remember a quarter that we lost over 600.00 in merchandse.) I will defend Blockbuster until the day I die. When you become a member you agree to certain terms. Sorry if you can't hold up your end of the bargain. I'm not going to say that our executives haven't made some bad business decisions that contributed to this demise.. but I will say I'm sad. Sad that so many will lose their jobs and that a culture of brick and mortars will go away. The idiots on here cheering our loss are probably the same idiots that voted for Obama... Explains a lot.. Truly...

Blockbuster lost me years ago after numerous lousy customer service experiences. I got billed a late fee for a movie I never even rented. After numerous phone calls up the (incredibly rude & belligerent) management food chain, the problem was corrected after 4, yes 4, months. In the meantime, their collections agency went after my credit score. All I got was a half-hearted "mistakes happen." This was from management that was supposed to professionally handle customer problems. What a joke.

Additionally, the people who say the fees are only $1 a day must have been going to a different blockbuster. It appeared to me that their entire profit structure was based on questionable "fees", not rentals. Good riddance to rubbish. Go Netflix.

im going to cry my eyes out. blockbuster is the best and always will be

 
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