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Blockbuster files for Chapter 11 bankruptcy, sets plan to reorganize

Blockbuster 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 () | Archives (39)

Can't remember the last time I rented a movie from BlockBuster but c'mon. 3 or 4 bucks to rent a movie for a week wasn't bad. And if you couldn't get the movie back to them in a weeks time then you deserved any and all the late payment fees that you incurred.

Stream it or forget it, Blockbuster.

One reason BB couldn't do many of the things it needed to do to compete was that they had to service their massive debt. Every time they wanted/needed to do something (advertise, roll-out kiosks, etc) their banks would say "sure, but pay us our monthly $50M first...". Now, there is potential for that to change a lot.

BB has certain advantages over redbox and offer the exact same service as netflix. The pieces are all there and yes, even the Brand will recover with good advertising and service. Did you know that their sales currently exceed those of r.box?

And as I wrote earlier, studios have been paid billions by BB over the years so their supply chain is intact.

I don't know why anyone is sad about this, other than the loss of jobs.

Blockbuster put lots of family-run video stores out of business. It was probably inevitable that some chain would do that, but replacing local businesses with out-of-town businesses run by low-paid drones always hurts a local economy.

And in Blockbuster's case, well-run local stores were replaced with badly run chain stores.

This was really apparent to me when I moved from a small town with no Blockbuster to Atlanta.

In the dinky little college town's video store, the selection wasn't as good, but the people who ran the store knew my name, would hold videos for me, waive late fees from time to time and always treated me like I was a human being.

In suburban Atlanta, the Blockbuster employees, even the "managers," tended to be snot-nosed, pimply teen-age morons with the manners of billy goats and less sense. I doubt they could get hired anywhere else.

If you dropped off a late video after hours, they'd send a letter within days threatening to send a collection agent to collect the $2 from you.

If they had just sent a reminder that I owed them money, I would have been fine with that. I did owe them money. But to threaten me with a collection agent and potential legal action over $2 ... that's just so STUPID and rude.

I finally called their bluff on it the 2nd time it happened. I walked into the store and made the half-wit "manager" come out of her closet office space and close my account personally. Then I told her if she wanted that $2 she'd have to get a collection agent to do it, and good luck with finding one.

I wrote a letter to Blockbuster corporate offices in Florida to complain, but never heard back.

I'm sure there must have been some good employees there and I'm sorry if they're losing a job. But BlockBuster killed more jobs than they ever created and deserved to go out of business decades ago.

The last time I went into a Blockbuster was about a year ago. I spent an hour wandering through the store and realized that it had absolutely nothing that I wanted, that I couldn't get cheaper somewhere else.

Basically, Blockbuster is dying because its business model is outdated and no longer makes sense. Why worry about the term of your rental when there's Netflix? Why make a special trip to the video store when there's Redbox? Why leave the house at all, when you can rent through VOD services like iTunes or your local cable operator? Why buy beat-up used DVDs from them when you can probably get a new copy through Amazon for a competitive price?

Blockbuster has no competitive advantage over anyone anymore.

I vowed to never again rent from Blockbuster when I got dinged for late fees for returning a movie 15 minutes past midnight. They lost a good customer years ago. This is delicious, sweet revenge. Blockbuster can rot.

Why is KD defending Blockbuster? Here's the reality--Blockbuster Video was a fat cat bathing in their own urine for the past 15 years and refusing to innovate. Why didn't they come up with the Netflix model back in 1995? They should have. Why didn't they beat Red Box to the punch with the kiosks? I'll tell you why...they were lazy. Comfortable. You gotta innovate if you are going to survive, especially in that business. Blockbuster is going the same road as the record companies, music stores (Tower Records, we hardly knew ye), etc. Did they really think the brick and mortar model would last forever? The internet has been around for 15 years already, they should have pioneered the Netflix model back in 2000. But they were too busy collecting late fees and alienating their customers. Well, it's time to pay the piper, Blockbuster. Good riddance to bad rubbish.

HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA!!!!!!!!!!!!!!!!!!!

I see complaints about people getting charged for late fees, however there are late fees for redbox as well. As far as netflix being a good source of through the mail media, Blockbuster offers the same type of media at a lower and more efficient price. Not only can you rent movies through the mail from Blockbuster but they charge about the same and also do not charge extra for blu ray movies and games.

Another reason why people might consider Blockbuster over another media source would be as simple as not having a credit card, where netflix, redbox, and gamefly require these for an initial sign up. This is without saying that you must have a credit card in order to rent next generation games(xbox360, ps3, wii. Yet movie entertainment only requires a valid drivers licence.

I beg people to reconsider blockbuster by mail over netflix. Not only can you get the media you desire by mail, but in fact if you don't want to wait for a movie to come in the mail you have the option to have movie in store exchanges which a lot of customers use over the regular rental prices. 3 movies at a time with no late fees with 5 in store exchanges at only 20 bucks a month is not a bad deal by any standard. The lowest price with no in store exchanges starts at only 8.99 a month with a one out at a time no in store exchanges, which could directly be compared to gamefly, yet you get movies and games with no late fees and no due dates.

I feel that the customer base is just sick of late fees, yet they fail to understand that if we don't have a product in stock it prevents others from renting the movie/game. This is why blockbuster charges the late fees. If you really have a problem with late fees, return your rental on time and problem solved.

Being with blockbuster as an employee for 2 years now, this saddens me greatly knowing that a company I have grown up with since I was about 8 years old, now at the age of 25, is filing a chapter 11. I just hope Blockbuster can pull through, not only for my job, but as a great source of media entertainment.

It's only a matter time till Blockbuster will be a thing of the past. It already is in my life.

Good riddance, This company is and has been a major rip off and adamant about nevr changing their greedy mentality. May they rot in hell. Greedy bastards.

That's what you get for trying to milk dry rent out DVDs for 4.99- where was your strategical marketing team on that one - I can't believe that blockbuster didn't see this coming and was more aggressive- in the simplest form it's like regular folks getting ready for Christmas shopping they adjust until their budget is back intact- block had the resources and the huge name to launch a great campaign to proactively counter this new digital age- with that being said they get what's coming to them- my prayers go out to their operation level employees they will looking for new jobs soon- thanks fios and Netflix for saving me time and money- hell for thy matter playstation store as well- bt

After so long time and struggle hope that bankruptcy will help them to relief from the debts.

 
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