According to several sources Blockbuster Video, a staple of home theater content for decades, may soon be going the way of the Dodo. Their recent statements about the questionable future of the company sent both stock and bond prices tumbling. The declining popularity of actually going to a video store to rent movies, competition from home delivery pioneer Netflix and video download services, competition from Redbox kiosks, and the sour economy are to blame. Even more troubling for the movie rental giant may be that it owes a tremendous amount of money.
Blockbuster is about $1 billion in debt, and losing more every month. Despite revenues of over $4 billion, they have found it difficult to stem the losses, which last year amounted to over $350million. That's a pile of cash in any situation, but it may be even worse for Blockbuster, because they have a $300 million of notes due in September, 2012. That's a big check to write.
Noteholders are fearing the worst (Block buster may not be able to repay them in 2012) and have recently tried to arrange a debt for equity swap. That begs the question of the desirability of owning equity in a rapidly sinking organization, but presumably these folks know something the rest of us don't. They may figure that it is better to have ownership in something, and try to profit from a turnaround, than to face the very real possibility that they'll receive nothing in 2012. People fear Blockbuster may have having trouble making interest payments on these notes as well.
In their quest to right the ship, Blockbuster has been fairly aggressive in closing many of their stores. You may have noticed how few have been shuttered in your neighborhood. Blockbuster has also been trying to introduce new ways of delivering content that are more consistent with the 21st century. They recently announced a mobile movie service for T-Mobile's new HTC HD2 smart phone, and will soon have a similar service for Android and Windows powered smart phones too. They beat everyone else to market with that move, which may mean all is not lost for Blockbuster yet, even though the expected near term revenue from mobile amounts to a drop in the bucket, compared to their overall financial picture.
They have been attacking DVD kiosk giant Redbox, with their NCR partnership that plans to have 10,000 new, Blockbuster Express kiosks by mid summer. One asset blockbuster does have is tremendous brand equity. The name is synonymous with video rental, and that alone could help get their kiosk business of to a very fast start.
They have also penned a deal with Warner Brothers studios to get exclusive rental rights for roughly 30 days before Netflix and Redbox get to rent them. That is a definite coup for the beleaguered blue and yellow.
Will Blockbuster figure into the content picture for your home theater in the future? Who can tell, but they definitely have some tough times ahead.
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