Blockbuster heading for bankruptcy, Netflix heads to the bank

Posted on August 31, 2010

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So this was inevitable. I think it is important to look at this as the canary in the cage that the miners watched to make sure they didn’t die. By that, I mean that the changes in the distribution model for digital media is killing Blockbuster and this could be the early warning for cable as new distribution models develop for TV, look for iTV from Apple to start paving the way, along with HULU and a slew of others. The key to the next generation of company killers in the media space will be those companies that deliver on demand distribution at the device. This new delivery model is hurting a few others like Barnes and Noble and Borders. Think about this- Staples is starting to sell Amazon’s kindle, now thats gonna hurt old school book stores!

According to published reports, Blockbuster hopes to enter a pre-planned bankruptcy for approximately five months in order to restructure a debt load of nearly $1 billion and escape leases on 500 to 800 of its worst-performing stores. The Dallas-based retailer currently operates 3,425 U.S. stores, and it has already closed nearly 1,000 stores in the past year alone. For the quarter that ended July 4, 2010, Blockbuster posted a 19.7% drop in total revenues to $788 million, from $982 million from the same period in 2009. Net losses for the period were $69 million, affected both by store closings and declines in comp-store sales.

Changes in the delivery methods for home entertainment, with snail mail (Netflix.com), self-service kiosks (Redbox) and on-demand technologies elbowing aside store-based rentals, helped push Movie Gallery into Chapter 11 protection in February 2010. Now, a name once synonymous with movie rentals, Blockbuster, reportedly plans to declare bankruptcy in mid-September. If this occurs, this will be the fourteenth retail company to do so this year.

The economic recession may be “officially” over, but its lingering effects–high unemployment, tight credit and shoppers watching every penny–are combining to create a still-tough business environment for retailers large and small that are operating in a wide range of verticals. Companies as varied as A&P, Trans World Entertainment, Borders, Barnes & Noble, Liz Claiborne, Rite Aid and Pacific Sunwear have all posted disappointing financial results in recent quarters, and they and many others are on financial analysts’ “critical list.”

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