Blockbuster files for Chapter 11 bankruptcy, sets plan to reorganize

After struggling with nearly $1 billion in debt and growing competition from Redbox and Netflix, Blockbuster Inc. filed for Chapter 11 bankruptcy protection on Thursday.

The filing, long expected, would wipe out the debt and equity of the once dominant DVD rental chain and put the owners of its senior secured bonds, including activist investor Carl Icahn, in control.

Blockbuster's stores, kiosks and online services will remain in operation during bankruptcy, which will likely last only a few months if the process goes smoothly under the plan filed in U.S. Bankruptcy Court in New York.

Blockbuster executives told the major Hollywood studios in August that they expected to shutter 500 to 800 of its 3,425 U.S. stores as part of a bankruptcy process that would begin in September.

In a statement Thursday, the company only said it would "evaluate its U.S. store portfolio with a view toward enhancing the overall profitability of its store operations." Blockbuster also said that foreign operations will continue at stores in Canada, Denmark, Italy, Mexico and Britain but that it would no longer support its money-losing subsidiary in Argentina.

Going forward, Blockbuster is expected to focus more on its kiosks and digital initiatives to succeed in a rapidly changing market for movie rentals.

Icahn, a longtime media investor who is currently the largest shareholder in Lions Gate Entertainment, has been buying up Blockbuster bonds recently and is said by people familiar with the situation to own at least one-third of its total secured debt. The reorganization plan calls for him to select two of seven members of the company's board of directors once it exits bankruptcy. In addition, he and investment firm Monarch Alternative Capital will select another member jointly.

Chief Executive Jim Keyes is expected to remain in his post, one person close to the situation said.

Although the holders of Blockbuster's about $630 million in senior secured bonds will take over the company, the owners of its $300 million in unsecured debt will be wiped out, as will those who own its virtually worthless stock, which closed Wednesday at 6 cents per share.

The senior bond owners also will provide Blockbuster with up to $125 million in so-called "debtor-in-possesion" financing to continue operations during Chapter 11. The company will have access to a credit facility of up to $50 million upon exiting Chapter 11 to restart its business. Money drawn from that financing will be the company's only remaining debt under the plan.

It's unclear how Blockbuster's other debt, accumulated as part of ongoing business recently, will be treated. A filing said the company's total debt was $1.465 billion, and its assets were just over $1 billion.

Among the largest creditors that have claims against Blockbuster are the major studios. According to a court filing, the company currently owes $21.6 million to 20th Century Fox, $20 million to Warner Bros., $13.3 million to Sony Pictures, $8.6 million to Walt Disney Studios, $8.3 million to Universal Studios, and $7.9 million to Lions Gate.

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 Movie Gallery Inc. -- parent company of Hollywood Video, formerly the second-largest DVD rental store -- went out of business in April.

In a statement, Keyes said, "The recapitalized Blockbuster will move forward better able to leverage its strong strategic position, including a well-established brand name, an exceptional library of more than 125,000 titles, and our position as the only operator that provides access across multiple delivery channels -- stores, kiosks, by-mail and digital."

-- Ben Fritz

Related:

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

Comments

[1norcalman]

Blockbuster always seemed like an overpriced, understocked last resort when it came to getting videos and or games. It's not surprising that Red Box (at a dollar a night) and Netflex (unlimited rentals and streams) have helped put a stake through the Blockbuster heart.

[los angeles]

Blockbuster was a ripoff company that overcharged for late fees, im glad to see them go.

[Mr. Pibb]

I remember when Blockbuster charged my credit card $6 in late fees. I promised to never go to blockbuster again. I hope they go out of business. So blockbuster i ask you this. Was it worth it to charge all of us those late fees? Now you are the one paying the fees.

[woohoo]

you are the one who put your credit card on the account mr pibb so you should have known full well they would charge it

[El Guapo de la ciudad de Los Angeles]

I wonder what their censored movie library will sell for.

[VideoNut]

What does Blockbuster plan to do differently to turn them around? Retail video is dead. It sounds like wasted money to come out of bankruptcy.

10 years ago I canceled my Blockbuster membership when the 15yo manager (every employee was a "manager") charged me a late fee for missing the 12pm deadline by 45 minutes.

Blockbuster's brand is damaged beyond repair and it's the only thing of value they have. They certainly don't have a competitive edge.

[sleepydumbdude]

Blockbuster has made bad decision after bad decision and I am glad to see them get whats coming. They have always been overpriced and remained that way even after the competition had lowered theirs. Don't get me started on the whole late fee thing.

[Jimmyboy]

Of course they charged late fees. You probably sent your kid in with a bag full of late items as you cowered in the car or jammed them in the movie drop and ran.

[KD]

BB has, more than nearly ANY other company, helped the entertainment business over the years. DVD revenue has floated many big and small studios and helped pay many blue and white collar CA salaries over the years. That will not be forgotten as every newfangled distrib option comes along promising the studios the moon and stars above... BB has paid billions to studios and distributors over the last 15 years.

I have heard so much belly-aching from consumers who had a bad BB experience, in most cases years ago. It's like complaining about how poorly the Ford Pinto is built (maybe GE is a better example since they are back after Chapter 11). I use the BB online service and it rocks (used to use Netflix). The fact that I can return a DVD at a local store is super handy when you want a movie right away. Their kiosk holds nearly 2x the titles of Redbox AND they have a lot of inventory already.

CEO Jim Keyes has been outstanding. He took over, stood up, pushed forward and has a small salary by CEO standards. Icahn would be crazy to force him out so he won't. Entertainment companies will continue to strongly (if conditionally) support BB. And once they don't have to spend all of their revenue servicing massive debt...well, I think the competitors had better keep their powder dry.

[S.Tan]

i can understand the disgruntlement to some degree, but aren't late fees our own fault?

it's the recently recurring U.S. mantra..."responsibility lost to entitlement!"

[S.Tan]

i can understand the disgruntlement to some degree, but aren't late fees our own fault?

it's the recently recurring U.S. mantra..."responsibility lost to entitlement!"

[Richard]

I go to blockbuster on a semi-regular basis. Mostly I look at the used DVD's for sale. I sometimes buy them, usually the stuff I'm not likely to see in the big chain stores like small independent films that someone traded in. I only buy at the sub $5 level, with very few exceptions, since I know eventually most will be available, new, at not much more than that.

[Mary in Iowa]

Hey Los Angeles and Mr. Pibb... I think you're thinking of the wrong company, Blockbuster doesn't have late fees. There is a week grace period beyond due dates and after that the cost of the movie is put onto your account, but it can be removed if you return the DVD...

As a former employee, I find this kind of sad... but also not very surprising. Their rentals are overpriced!

[imoverhere1]

ill always remember blockbuster as the rudest people to deal with, they were doin YOU a favor by taking your money for renting their movies. AMF blockbuster

[.]

Actually... for yeaaaars, blockbuster wasnt charging aaaany late fees...
you could keep a movie for weeks and bring it back, and the most you'd pay was $1.25
only after they realized that people keeping movies as long as they wanted was helping with their debt, they decided to do a dollar a day just like redbox and everyone else
if you keep a movie 6 days extra with redbox, they'll automatically charge your cretid card too
the only difference, is they dont have actually ppl you can talk to about it, to bullshit your way through getting a credit back for it
people taking advantage and not being responsible for returning their movies after a reasonable 5 days just helped to bringing blockbuster down, and having them conform to the $1 per day thing
SOOOOO thanks guys for not bein able to keep track or be able to read a calendar
There are many people like me who actually can
And have enjoyed renting from blockbuster for many years

[Polomoche]

Former Blockbuster customers read this news with schadenfreude; when you are relentless in bilking your customer for every penny you can get, eventually it will catch up to you. The reason Blockbuster is going bankrupt has more to do with consumer predation than the digital or mail-in structures of their competitors. Let other American companies take notice (because many - if not most - employ the very same practices of ridiculous fees, penalties, hidden costs, etc.) on how NOT to run an otherwise viable business.

[Tsiong]

bite the dust...hard

[Ezra]

I don't know why Icaan is considered such a legendary investor. His last two high-profile investments were Blockbuster and G.M. I personally would like to see both of those businesses go.

[Al Kracker]

How come a company can declare bankruptcy, and then go back to operating normally a few months later as if nothing ever happened? If I go bankrupt, my life is ruined for 10 years at least! Blockbuster stores really sucked in the extreme. That they're gone is a good thing.

[Dashboard Software Reporter]

I wish I could say I felt sorry for them, but they had it coming years. Beside the obvious fact that they fell behind the times to Netflix and Redbox, they had awful customer service, exorbitant rental fees, and outrageous late fees. They certainly had the chance to revamp their business model, but chose to keep trying to wring every last cent out of their client base. The real crime is that they'll be allowed to reorganize under chaper 11 when they should be completely liquidated and have their assets sold off.

[Jorge]

Good Riddance! Late fee's were their version of banks overdraft policies.

I hope that netflix get competition, so they won't turn into blockbuster in a couple years.

[phoenixandrew]

I never had a complaint with Blockbuster with regards to late fees. If the movie is returned late, it's my fault. My only complaint was that they were usually understocked and many times I didn't find the movie I wanted.

[G Poirier]

I stopped going to Blockbuster a long time ago. Haven't missed them for years. Netflix is awesome! I worked in video stores back in the day when Blockbuster was just coming up. They put our stores out of business and bought them. Then, as a customer, I hated going in there. The fees, the poor selection. Once, they told me I couldn't have a backpack on while I shopped. Like I was going to steal their empty boxes! I never went back after that. I'm glad to see such an awful company go under.

[Brijesh]

Its sad to see the people working at BlockBuster lose their jobs. Its very bad to see the supply chain management system of blockbuster go bust and add more job loss to already bleeding market. Its also sad to see the properties leased by Blockbuster through out US go on for lease sign adding further misery.
But well every one is happy coz now they wont have to pay late fees coz of their own late assess!!!
Welcome Netflix...
I wish BestBuy should be next in line Hey who wants to buy from best buy when there is Amazon.com rite?

[jeremy]

The dumbest move Blockbuster made was to not include the online movie service they bought a while back and not include a subscription with their mail order service.

That mail order service was good until they raised prices. They allowed you to exchange movies at the store for an additional movie and still get the next in your list mailed to you.

I had that for a year or so, but the prices kept changing, and with Netflix instant watch I dropped them in a second.