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Studios may tighten credit on Blockbuster, force bankruptcy

March 16, 2010 |  4:38 pm

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