Dish Network to acquire Blockbuster for $320 million

Satellite television provider Dish Network has emerged as the upcoming owner of Blockbuster Inc. It has agreed to pay $320 million for virtually all the assets of the troubled home-video chain, making it the winner of a bankruptcy auction that began Monday.

Other bidders at the proceedings in a bankruptcy court in New York included billionaire investor Carl Icahn, South Korea's SK Telecom, and a group of Blockbuster creditors.

In Blockbuster, Dish will get a once-dominant brand that is now struggling, having seen its business deteroriate rapidly in the last several years largely due to fast-growing compeitors such as Redbox and Netflix. Blockuster, saddled with debt, has shut down more than a thousand stores over the last year. It currently operates 1,751 stores in the U.S., compared with 3,425 in 2010.

In a statement, a Dish executive indicated that the satellite television company will use Blockbuster to promote its services and extend its ability to deliver movies, presumably by way of the Internet as the business increasingly goes digital.

“With its more than 1,700 store locations, a highly recognizable brand and multiple methods of delivery, Blockbuster will complement our existing video offerings while presenting cross-marketing and service extension opportunities for Dish Network,” said Tom Cullen, executive vice president of sales, marketing and programming for Dish Network. “While Blockbuster’s business faces significant challenges, we look forward to working with its employees to reestablish Blockbuster’s brand as a leader in video entertainment.”

The acquisition, which includes $228 million in cash and still needs court approval, is expected to close by the end of June.

Because it has been in Chapter 11 bankruptcy since September, Blockbuster no longer carries the almost $1 billion in debt that nearly crushed the company last year. Creditors including Icahn had planned to reorganize the home-video chain in Chapter 11 but disagreed over how much cash to infuse it with as sales deteroriated over the holidays, leading to the decision in February to sell Blockbuster's assets at auction.

[Update, 4:45 p.m.: For much more, see the story in tomorrow's Times on Dish Network's plans for Blockbuster.]

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Bidders including Dish Network and Carl Icahn lining up for Blockbuster auction

-- Ben Fritz

Blockbuster creditors currently leading Dish Network, Carl Icahn in auction

A group of creditors that offered $290 million for struggling home entertainment chain Blockbuster Inc. was the lead bidder at midday Tuesday in the company's bankruptcy auction, according to people present at the New York proceedings.

South Korean telecom firm SK Telecom had the second-highest bid, according to Richard Kanowitz, an attorney representing Blockbuster's unsecured creditors. Other bidders were satellite television company Dish Network, billionaire investor and Blockbuster creditor Carl Icahn, and a pair of liquidation firms working together.

The creditors, led by Monarch Alternative Capital, have joined together in a venture called Cobalt Video. Their opening $290-million offer was intended as a minimum bid, but other offers were evaluated based in part on how much money would remain as cash to be allocated to creditors. On that basis, Cobalt remained in the lead as of midday, Kanowitz said, though Dish had initially looked like the top bidder when the auction opened Tuesday after initial proceedings on Monday.

Bidding will continue Tuesday afternoon. It's currently unclear when the auction will end and a new owner will emerge for Blockbuster.

-- Ben Fritz

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Bidders including Dish Network and Carl Icahn lining up for Blockbuster auction

Bidders including Dish Network and Icahn lining up for Blockbuster auction Monday

By next week, troubled home entertainment company Blockbuster Inc. might be in the hands of a famed Wall Street investor, a satellite TV company, a South Korean telecom firm, a group of hedge funds or another buyer.

On Monday, the DVD-rental chain that was once the biggest name in American home entertainment will go up for auction after a planned reorganization under Chapter 11 bankruptcy protection failed when its financial performance deteriorated faster than expected.

Blockbuster has fallen behind fast-growing competitors like Netflix and Redbox, and has been unable to support a nearly $1-billion debt load. The Dallas company will soon find itself with new owners, who will either attempt to revive the brand or maximize profits as its business continues to shrink.

Among the likely bidders expected to take part in the auction are billionaire corporate raider Carl Icahn, satellite TV company Dish Network and South Korean firm SK Telecom. A group of Blockbuster creditors including Monarch Alternative Capital, Owl Creek Asset Management, Stonehill Capital Management and Varde Partners previously submitted an opening bid of $290 million to set a minimum value.

A person close to the process said five to 10 suitors are expected to make offers. Richard Kanowitz, an attorney for Blockbuster’s unsecured creditors, confirmed that more than two bids had already been submitted.

Blockbuster to shutter 186 stores, including 15 in California

As it heads toward the auction block in early April to end its troubled bankruptcy process, Blockbuster Inc. is shuttering 186 stores.

The struggling home video chain revealed in court filings that it will reject the leases and abandon its properties at the end of the month in an attempt to reduce its ongoing losses.

Among the Blockbuster locations that will close are 15 in California and six in the Los Angeles area, including stores in El Segundo, Santa Ana, Newport Beach, Corona, Anaheim Hills and L.A.'s Larchmont neighborhood.

Before it entered bankruptcy in September, Blockbuster had 3,425 stores in the U.S.

Since a reorganization plan fell apart due to disagreements among creditors, Blockbuster has found itself assailed by movie studios, landlords and others that claim they are owed money. It will now be sold and a group of creditors has filed a "stalking horse" bid, intended to create a floor for other bids, of $290 million. The auction is scheduled to take place on April 4 in New York.

-- Ben Fritz

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Blockbuster sales process objected to by Disney, Universal, landlords, U.S. trustee and others

Blockbuster to be sold; opening bid set at $290 million

Blockbuster files for Chapter 11 bankruptcy protection; sets plan to reorganize

Blockbuster sales process objected to by Disney, Universal, landlords, U.S. trustee and others

Blockbuster Inc.'s plan to put itself up for sale after a Chapter 11 reorganization process failed has run into a wall of opposition including Hollywood.

In Bankruptcy Court filings Monday and Tuesday, Walt Disney Studios, Universal Studios, landlords, unsecured creditors, other parties and the office of the U.S. Trustee, a Justice Department unit that oversees bankruptcy proceedings, all objected to the sales process proposed Feb. 21 by Blockbuster's senior lenders.

Their main objection was that the plan would benefit Blockbuster's secured creditors, which include activist investor Carl Icahn and hedge funds such as Monarch Capital, at the expense of the rest. They are particularly upset that those lenders remain in the most advantaged position even though a planned $125-million credit facility that they were supposed to provide in order for Blockbuster to pay creditors during the bankruptcy process has been terminated with no debt outstanding.

"Not only did the pre-petition lenders fail to advance funds sufficient to pay the administrative creditors' claims, but they have now terminated the [credit] facility and are commandeering the Chapter 11 case to help themselves while leaving the estates and administrative creditors uncompensated," Disney said in its court filing. The studio said it is owed $9.2 million for DVDs shipped to Blockbuster since the company entered Chapter 11 in September.

Other studios that have said in court documents they are owed millions of dollars for products shipped since September include Universal, 20th Century Fox and Summit Entertainment.

Several of the objecting parties, including the U.S. trustee, argued in court papers that instead of seeking a buyer, Blockbuster should be forced into Chapter 7, a liquidation of all its assets. That would mark a dramatic end to a company that less than a decade ago dominated the U.S. DVD and VHS rental market.

A Blockbuster spokesman did not respond to a request for comment.

A group of Blockbuster creditors last week filed a "stalking horse" bid, intended to create a floor for other bids, of $290 million. That includes $25 million that would be carved out to pay some money owed to the six biggest studios: Disney, Fox, Universal, Warner Bros., Paramount Pictures and Sony Pictures.

-- Ben Fritz

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Universal is latest studio to make claim against Blockbuster

Blockbuster to be sold; opening bid set at $290 million

Blockbuster files for Chapter 11 bankruptcy protection; sets plan to reorganize

Universal is latest studio to make claim against Blockbuster

Bankrupt DVD rental chain Blockbuster Inc. is increasingly finding its biggest content suppliers in Hollywood are turning into opponents in court.

Universal Pictures on Wednesday became the third movie studio, along with 20th Century Fox and Summit Entertainment, to submit a filing in Blockbuster's bankruptcy court case claiming that it is owed millions of dollars in unpaid fees.

The disputes threaten to deprive Blockbuster of new DVDs as it continues to operate while seeking a buyer. Blockbuster said on Monday that it is putting itself up for sale after its Chapter 11 reorganization effort failed.

In the filing, Universal's home entertainment unit said it is owed $6.4 million for movies it has shipped to Blockbuster since the company filed for bankruptcy in September, including "Charlie St. Cloud" and "Scott Pilgrim vs. The World." The studio said it is "at risk" for another $7 million that will come due "in the next few weeks and months."

Universal requested that Blockbuster be compelled to immediately pay the overdue funds or that the studio be allowed to reclaim its DVDs.

Universal noted that when Blockbuster initially filed for bankruptcy, the company sought permission from the court to continue paying studios in order to secure their content during the reorganization process. "Without the complete ongoing support of the studio," the company said in court documents at the time, "Blockbuster essentially would be out of business."

Last week, Fox told the court that the studio is at risk for $7 million that will come due from Blockbuster in the next several months.

Summit Entertainment in January filed a court motion requesting immediate payment of $9.5 million it said it was owed. A hearing in the Summit case has been set for March 2.

A Blockbuster spokesman did not respond to a request for comment.

-- Ben Fritz

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Blockbuster to put itself up for sale

Blockbuster files for Chapter 11 bankruptcy protection; sets plan to reorganize

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

Photo: Mary Elizabeth Winstead in "Scott Pilgrim vs. The World." Credit: Universal Pictures.

Blockbuster to be sold; opening bid set at $290 million

Home video chain Blockbuster Inc., in bankruptcy, has opted to put itself up for sale after creditors were unable to agree on a recapitalization plan.

The Dallas-based company said Monday that it has submitted a plan for an auction process to U.S. Bankruptcy Court in New York. A holding company formed by four if its largest creditors -- Monarch Alternative Capital, Owl Creek Asset Management, Stonehill Capital Management and Varde Partners -- has submitted an opening "stalking horse" bid of $290 million.

The offer is intended to create a floor for future bids, though if none come in, the company would end up in the hands of those creditors.

Billionaire corporate raider Carl Icahn, the largest owner of Blockbuster's debt, is not part of the stalking horse bid.

In a statement, Blockbuster Chief Executive Jim Keyes said the company hopes to draw offers from both strategic and financial investors. "This will...allow for the consolidation of ownership of the company to those with a clear and focused vision for Blockbuster's future," he said.

When Blockbuster filed for Chapter 11 bankruptcy protection in September, the owners of $630 million of its senior secured bonds said they intended to exchange their debt for full ownership of the company. That plan appears to have fallen apart in Bankruptcy Court proceedings, however, leading to the new sales process.

[Update, 5:43 p.m.: For more, see the story on the pending sale of Blockbuster in tomorrow's Times.]

--Ben Fritz

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Blockbuster files for Chapter 11 bankruptcy protection; sets plan to reorganize

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Shares of Redbox parent Coinstar hammered on earnings warning

This post has been corrected. See the note at the bottom.

Video-rental chain Blockbuster Inc. has been running ads criticizing its competitors for making consumers wait 28 days to rent new movies.

In the case of Redbox, it turns out consumers may agree.

Shares in Coinstar Inc., the parent company of $1-per-night DVD rental kiosk company Redbox, plummeted 26% on Friday after it disclosed that results for the fourth quarter ended Dec. 31 would be lower than expected. The reason: The company recently signed deals with several studios agreeing not to rent new movies until they had been on sale for four weeks.

"This was Redbox's first holiday season with 28-day delayed titles, and we underestimated the impact that the delay would have on demand during the fourth quarter," Coinstar Chief Executive Paul Davis said in a statement.

He also said that demand for high-definition Blu-ray discs, which Redbox has been offering for $1.50-per-night, have been lower than expected.

Redbox agreed to 28-day delays with three of Hollywood's biggest studios: Warner Bros., 20th Century Fox and Universal Pictures, all of which hope the so-called "window" will push consumers to purchase movies or pay a premium to rent them earlier from Blockbuster or through online services. That meant Redbox users who wanted DVDs like "Inception," "Despicable Me," and "Knight & Day" would be forced to wait nearly a month in exchange for paying a lower rental fee.

Analysts are divided over whether Redbox's disappointing results represented a temporary bump in the road or longer-term structural issues.

"In our view, Thursday's preannouncement is more a reflection of overly aggressive guidance than underlying weakness," Wedbush Morgan analyst Michael Pachter wrote in a research note.

But Needham analyst Charlie Wolf said Redbox could also be a victim of consumers' rapid shift to the Internet for watching movies.

"Logistical snafus were part of the problem, but this raises the issue of whether there is a faster change in the marketplace than expected from physical rentals to digital distribution," he said.

Redbox competitor Netflix also agreed to 28-day new release delays with four studios, but consumers have always used it less for new releases than Redbox. In addition, Netflix already had a popular online streaming option. Redbox has announced it will partner with another company to offer movies via the Internet, but has yet to detail launch plans.

Coinstar will release its fourth quarter financial results on Feb. 3. Revenue is expected to be about $391 million, compared with a previous company estimate of between $415 million and $440 million.

Davis noted that despite the lower-than-expected growth, Redbox revenue would still be up 38% from the same period in 2009. Discounting the addition of new kiosks, he said sales were up 12.5%.

Coinstar stock was trading at $42.17 on Friday afternoon.

For the record, 7:20 p.m. Jan. 14: An earlier headline said, "Redbox shares hammered after signaling that results to be lower than expected." Redbox is not publicly traded; it was shares of its parent company, Coinstar Inc., that declined.

-- Ben Fritz

Photo: A customer uses a Redbox kiosk. Credit: Elaine Thompson / Associated Press

You're not dreaming: 'Inception' kiosk rentals are $3 per night

'Inception' and 'Knight & Day' will be used to test whether consumers are willing to pay more than $1 per night to rent a popular new movie from kiosks in grocery stores and other retail locations.

NCR Corp., which operates DVD rental kiosks under the Blockbuster brand, on Tuesday began a planned premium pricing test in select markets.

Its approximately 900 kiosks in four cities will offer "Inception," which came out on DVD this week, and "Knight & Day," which debuted last week, for $2.99 the first night and $1 for each subsequent night. Historically, NCR and its largest competitor, Redbox, have charged $1 per night for all movies.

NCR's test is intended to determine whether some consumers would be willing to pay a premium for new releases instead of waiting to pay $1. The four test markets are Atlanta, Miami, Phoenix, and San Francisco.

NCR previously said it would begin a premium pricing test that would include "Knight & Day" as part of a content distribution deal with 20th Century Fox, the studio behind the movie. However at the time it hadn't yet decided on the $2.99 price or confirmed another film would be included in the test.

Three of the six major studios in Hollywood, including Fox and "Inception" distributor Warner Bros., have publicly complained that $1 per night is too low a price for new releases and that such offers undercut more profitable DVD sales. As a result, they have called for Redbox and NCR to not offer new-release DVDs until at least four weeks after they go on sale and have struck deals that mandate a delay.

While "Knight & Day" is being included with Fox's consent as part of the previous deal, NCR is using "Inception" without the participation of Warner Bros., which doesn't have a content agreement with the kiosk company.

-- Ben Fritz

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Fox to test premium pricing for DVD kiosk rentals starting with 'Knight & Day'

Blockbuster to launch first national ad campaign in three years

After years of losses and store closures, Blockbuster Inc. has a message for the country: We’re still here.

The once dominant movie-rental chain, which is undergoing Chapter 11 reorganization, will this week launch its first nationwide advertising campaign since 2007. The goal is not only to advertise what the company sees as its advantages over competitors Netflix and Redbox, but also to let consumers know that despite widely publicized struggles, it's still open.

“One of the biggest challenges for Blockbuster for the past few years has been public perception, and this is intended to remind people that we're still in business and we have a unique offering,” Chief Executive Jim Keyes said.

Blockbuster has fallen behind its competitors in recent years as consumers have flocked to Redbox’s kiosks, which rent movies for $1 a day, and Netflix’s DVD-by-mail subscription plan, as well as a growing number of digital options. Blockbuster now offers its own versions of all those options, but the other companies had a head start.

Dallas-based Blockbuster won approval from a federal bankruptcy judge and the lenders funding its operations to spend $15 million to $20 million on the new ad campaign, which highlights the fact that it offers many new releases 28 days earlier than Netflix and Redbox do. Both of those companies have agreed to impose delays on offering new DVDs from 20th Century Fox, Universal Pictures, Warner Bros. and, in Netflix's case, Sony Pictures because of the studios' concerns that their low rental prices undercut profits. Blockbuster charges higher prices, typically $3 to $5 for an in-store or online rental, generating more money for studios that share in the revenue.

With the new campaign, Blockbuster’s ad spending next month is to be three times as high as it was last December. The final month of the year is traditionally one of the most lucrative for the company, as summer event movies come out on DVD and families watch movies together over the holidays.

For the last several years, Blockbuster has focused its limited advertising on certain markets. But, Keyes said, the company felt it was important to run national ads on the broadcast networks in order to send a message to all consumers as well as to promote its digital and mail offerings, which are available throughout the country.

Since Keyes came on board in 2007, the company has tried to turn around its failing business by closing stores and investing in those digital and mail offerings, as well as partnering with NCR Corp. on rental kiosks. But Blockbuster has continued to lose money. It has been hobbled by nearly $1 billion in debt, and by the middle of summer, it could no longer afford interest payments. The company filed for bankruptcy protection in September.

As part of the reorganization, Blockbuster’s debt is being wiped out, and control of the company will be handed over to its bondholders. The company is expected to close 500 to 800 of its 3,425 U.S. stores. It is aiming to exit bankruptcy by early spring.

-- Ben Fritz

Related:

Blockbuster files for Chapter 11 bankruptcy, sets plan to reorganize

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

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