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Blockbuster May Have Busted Its Last Block

Credit Crunch, Web Competition Hit Hard

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Mom-and-Pops might get to watch Blockbuster close up shop for a change. In a filing with the SEC, the movie rental company acknowledges it may not be able to secure a $250 million loan to continue operations.

Blockbuster, which operates 7,400 stores in 20 countries, had hoped to close next month on financing that would float them until 2010. Because of lender reluctance and the illiquidity facing the larger economy, however, the company may not be able to meet lenders’ terms. From the SEC filing summary:

The risk that we may not successfully complete this refinancing and obtain the related amendment of certain financial covenants included therein, and/or the risk that we may not have adequate liquidity to fund our operations as a result of not meeting our projected financial results, even if the refinancing is completed within the time and upon the terms contemplated, raise substantial doubt about our ability to continue as a going concern.

Blockbuster Struggle This news may be surprising for some, especially considering that just a year ago Blockbuster nearly acquired Circuit City, which went under just after Christmas. In the filing, Blockbuster lays the blame on the worldwide economic downturn and the resulting credit crunch, but also briefly mentions the media entertainment industry “channel shift primarily driven by the emergence of new methods of distribution.”

Words Blockbuster doesn’t want to say likely include NetFlix, Amazon, and iTunes, the perfect storm of which forced the Starbucks of video rental to make radical shifts in strategy over the past couple of years. In addition to online offerings similar to (but not as good as) Netflix, the company eliminated in-store late fees, a source of huge revenue for the company over the decades, and heavily marketed that brick-and-mortar advantage.

But all that, in addition to set-top delivery of movie rentals, points out Ars Technica, meant Blockbuster was just late to the game. Netflix on TiVo, iTunes movies, Amazon’s Video on Demand were already way ahead.

Personally, it’s hard for me to feel sorry for Blockbuster. In my hometown, my father was the first to open a video rental store in 1982. He took pride in his video selection, emphasizing variety over mass quantities of premium, mainstream titles (though he was always sure to buy extra copies of those, too).

So when the chain stores moved in, each offering 50 copies of “E.T.,” 35 copies of “Ghost,” Dad would chuckle about all the great titles their inventories consistently lacked. His store (no membership fees!) became the local alternative for finding movies one would never see at Blockbuster. Nevertheless, in the mid -Nineties, he closed up shop. When Blockbuster came to town, the business started losing money for the first time.

Looking back, it seems Blockbuster ended up making the same mistake he did: stubborn devotion to a business model quickly going obsolete.  Dad’s world was a world of mom-and-pop operations that had survived and thrived his entire life, mom-and-pop shops he’d been running or helped run since he was a kid. (He tells stories of living above my grandfather’s grocery store and being told to keep an eight-year-old eye on the place and run the register when his parents had to run an errand—well before the invasion of Kroger and Wal-Mart). But Dad just didn’t seem to see the coming corporate invasion into small town business life, and saw no reason to change.

Blockbuster, with vastly more resources, bet on the idea that people didn’t want variety, they all wanted to rent the same small set of movies, that they’d pay way too much to do so, even pay exorbitant to the point of abusive late fees.

Plus, back then, those Hollywood premium titles weren’t as cheap to buy as they are now, and consumers couldn’t buy them at the grocery store the day they came out. Premium titles wholesale to the mom-and-pop video store were upwards of $100 per copy. And this was how Hollywood and Blockbuster ran mom and pop out of business to create a more streamlined, centralized approach.

So now Blockbuster’s getting killed by innovative upstarts, new business models, and lack of money. I’ll cry them a river for sure.

They could return of course, if able to secure those loans, and if not, then they might be able to resurrect online, the way Circuit City appears to be planning.

 

 

Blockbuster May Have Busted Its Last Block
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