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Blockbuster: may not be able to stay in business

Lee Stewart
04-07-2009, 08:03 AM
Blockbuster says risk to financing deals raises doubt about continuing as a 'going concern'

Monday April 6, 2009, 7:21 pm EDT

NEW YORK (AP) -- Movie rental company Blockbuster Inc. said Monday the risk that it may not complete financing deals raises "substantial doubt" about its ability to continue as a going concern.

Dallas-based Blockbuster, which has struggled amid the rising popularity of DVD-by-mail services like Netflix, disclosed the warning in a filing with the Securities and Exchange Commission. The company had already cautioned last month that its auditor was likely to raise doubts about its ability to stay in business.

A going-concern qualification refers to an auditor's assessment of a company's ability to continue to operate for the foreseeable future.

Last week, Blockbuster said its revolving and term loan agreement was amended, giving it a $250 million revolving loan refinancing that matures on Sept. 30, 2010. Lenders including JPMorgan also agreed to waive any default that could result if auditors attached a "going concern" classification.

But on Monday, the company said its lenders' obligation to fund the $250 million credit facility is subject to meeting certain conditions, and there can be no assurances that these conditions will be met.

Even if the loan is funded, the company said it "may not have sufficient liquidity to finance the ongoing obligations of our business, which raises substantial doubt about our ability to continue as a going concern."

Blockbuster said it believes that it will be in a position to close the amended credit facility by around May 11, though "there can be no assurance regarding these matters."

Shares fell 3 cents to 85 cents in after-hours trading, having closed earlier at 88 cents.

http://finance.yahoo.com/news/Blockbuster-may-not-be-able-apf-14864522.html

HD Goofnut
04-07-2009, 08:12 AM
Looks like another Circuit City in the making to me.

Nikopol
04-07-2009, 08:16 AM
more bad news :(

Lee Stewart
04-07-2009, 08:20 AM
Looks like another Circuit City in the making to me.

BBi has been struggling for years. Their current woes really have nothing to do with the recession.

An outdated business model is the real cause.

ack_bak
04-07-2009, 08:35 AM
BBi has been struggling for years. Their current woes really have nothing to do with the recession.

An outdated business model is the real cause.

And really bad management.

I hope Blockbuster sticks around since they are the only major alternative I see to Netflix at this time.

dsskid
04-07-2009, 08:36 AM
Very sad news if they close up. I always liked Blockbuster's selection (at least by me). Unfortunately, all we have for movie rentals in my area is Blockbuster and a junky Hollywood Video, and from the looks of the Hollywood Video near me is any indication, they don't look as if they are going to be around much longer either. I've tried Redbox, but the DVDs are always scratched, and right now they aren't carrying BD. So If BB and HV both go, it's either netflix or purchase.

I guess I can always do the "Be Kind, Rewind" thing, lol.

TheShadow
04-07-2009, 08:44 AM
Very sad news if they close up. I always liked Blockbuster's selection (at least by me). Unfortunately, all we have for movie rentals in my area is Blockbuster and a junky Hollywood Video, and from the looks of the Hollywood Video near me is any indication, they don't look as if they are going to be around much longer either. I've tried Redbox, but the DVDs are always scratched, and right now they aren't carrying BD. So If BB and HV both go, it's either netflix or purchase.

I guess I can always do the "Be Kind, Rewind" thing, lol.

If they go we will be at the mercy of NetFlix as far as pricing, with no competitors they can basicily charge whatever they want.

HD Goofnut
04-07-2009, 08:52 AM
If they go we will be at the mercy of NetFlix as far as pricing, with no competitors they can basicily charge whatever they want.

Yep, just like Best Buy since Circuit City folded.

dsskid
04-07-2009, 08:54 AM
Yep, just like Best Buy since Circuit City folded.
I guess that is one way of increasing DL adoption.

Lee Stewart
04-07-2009, 08:55 AM
If they go we will be at the mercy of NetFlix as far as pricing, with no competitors they can basicily charge whatever they want.

The Kiosk companies (Redbox, DVDPlay, etc) would disagree with you.:lol:

There are 20,000 of them (kiosks) already installed

HD Goofnut
04-07-2009, 08:57 AM
The Kiosk companies (Redbox, DVDPlay, etc) would disagree with you.:lol:

There are 20,000 of them (kiosks) already installed

With only a very small percentage carrying BD. I am still yet to see one that rents out BDs.

Lee Stewart
04-07-2009, 08:58 AM
With only a very small percentage carrying BD. I am still yet to see one that rents out BDs.

Redbox is addressing that issue. Once they get the price sorted out - they will carry them.

PFC5
04-07-2009, 09:01 AM
I suspect if the big rental stores cannot make a go of it, then we will end up going back to having mom & pop rental places again, but at a higher cost most likely.

I wonder is someone (besides Netflix) would just buy the BbOnline part of the business to at least provide competition to Netflix to keep Netflix honest. We can hope anyway.

HD Goofnut
04-07-2009, 09:02 AM
Redbox is addressing that issue. Once they get the price sorted out - they will carry them.

Have you seen a timeframe on that Lee? If they started carrying readibly available BD titles at the RedBox nearest me (3.5 miles) then I would probably drop NF altogether.

dsskid
04-07-2009, 09:09 AM
I find Redbox to be very inexpensive on DVDs, however, I haven't had much luck with getting DVDs that weren't scratched. I suspect with BD's coating, I think this would be less of a problem.

All I have heard regarding Netflix going BD is that they are "testing" certain markets. There has been no commitment that I have heard of to go forward and actually implement this nationwide.

Should BB close without Redbox commiting to BD, there will be a very big void.

ack_bak
04-07-2009, 09:23 AM
Redbox is addressing that issue. Once they get the price sorted out - they will carry them.

The problem for me (probably not as big an issue for J6P) is that Redbox only carries newer releases. While that is great for many movies, there are many catalog titles being released on Blu-Ray that I want to watch. So if Blockbuster goes under I will at least have to have a 1 disc out at time plan from Netflix. Which is not terrible since it is cheap, but it is still going require a monthly Netflix membership.

awol
04-07-2009, 12:23 PM
I wonder is someone (besides Netflix) would just buy the BbOnline part of the business to at least provide competition to Netflix to keep Netflix honest. We can hope anyway.

Actually, I wouldn't be surprised if BB doesn't go exclusively online. There's MUCH less overhead than running the retail stores this way. Plus, they already have the infrastructure there. If they do, I have to wonder if they would be able to also maintain a rental service for games.

Games-N-Flix had a great product, but they grew too rapidly and couldn't keep up with their customer base. They're out of business now as a result. But if someone like a BB could do both, they'd have an edge on Netflix with having a unique product. I would switch to BB online in a heartbeat if they offered both games and movies through one service and were priced competitively to the pricing I get from Netflix and Gamefly.

crazyal
04-07-2009, 01:06 PM
Outdated business plan, unable to compete in the market, throw in a CEO with a large golden parachute and I would say they should be talking to our new government about a bailout.

IMO BBi was always behind the 8 ball with the B&M stores. They just cost too much money to be competitive with NF or RB. A good plan for BBi would be to split off the mail rental so it can be on an even foot with NF. Maybe even rename it.

The B&M division should look into going back to the idea of multiple drop off boxes or a return by mail to the local store. It's just not possible to have a store located in a great location for everyone.

DonnyDC
04-07-2009, 01:52 PM
They should have hooked up with starbucks years ago.

BobY
04-07-2009, 08:46 PM
Outdated business plan, unable to compete in the market, throw in a CEO with a large golden parachute and I would say they should be talking to our new government about a bailout.

IMO BBi was always behind the 8 ball with the B&M stores. They just cost too much money to be competitive with NF or RB. A good plan for BBi would be to split off the mail rental so it can be on an even foot with NF. Maybe even rename it.

The B&M division should look into going back to the idea of multiple drop off boxes or a return by mail to the local store. It's just not possible to have a store located in a great location for everyone.

Every Blockbuster B&M store I've ever seen has been huge--I never understood why they needed so much expensive, finished retail floor space. All they need is a counter to order/pay at (could even be automated like kiosks), an unfinished storage area and a delivery mechanism.

Chris Gerhard
04-08-2009, 04:18 AM
If they go we will be at the mercy of NetFlix as far as pricing, with no competitors they can basicily charge whatever they want.

It is certainly better if Blockbuster survives but this is just absolutely not true. Video rental isn't an essential service and if Netflix raises prices further, Netflix likely goes bye bye due to loss of customers. VOD, Hulu, DirecTV, cable, OTA, purchase, borrowing from friends and any number of other options can replace their service. The business model for any entertainment service has competition from all entertainment options and each needs to be a good value or customers move on to other options. Netfix has managed to maintain profitability partly as a result of recent price increases but their market is very sensitive to that issue. I would expect no price increases as a result of Blockbuster's dissolution if it happens and a larger market might even help Netfilx maintain current pricing structure. I would expect special offers to entice Blockbuster customers to sign up, not the opposite.

Chris

MikeRox
04-08-2009, 05:23 AM
I agree with Chris, if Netflix tried to abuse their positions, others would also step in. I mean Redbox kiosks are already looking like a potential formidable rival to netflix at the rate they're expanding.

HD Goofnut
04-08-2009, 08:02 AM
I agree with Chris, if Netflix tried to abuse their positions, others would also step in. I mean Redbox kiosks are already looking like a potential formidable rival to netflix at the rate they're expanding.

If more of their kiosks start carrying BDs. That seems to be their main problem right now and it may be as simple as a supply issue.

Lee Stewart
04-08-2009, 08:04 AM
If BBi goes out of business there will be a huge hit to the Home Video rental revenue number. AFAIK, BBi does about $5B (out of a total of $7.5B). There is no way for RB or NF to absorb that number in a short period of time.

HD Goofnut
04-08-2009, 08:06 AM
If BBi goes out of business there will be a huge hit to the Home Video rental revenue number. AFAIK, BBi does about $5B (out of a total of $7.5B). There is no way for RB or NF to absorb that number in a short period of time.

So where would the people that make up that $5B turn? Where would they start renting their movies in the absence of Blockbuster?

Lee Stewart
04-08-2009, 08:11 AM
So where would the people that make up that $5B turn? Where would they start renting their movies in the absence of Blockbuster?

From NF or the Kiosk companies but it is a timing/availability issue. If BBi closed all their stores in one day it would play havoc with the DVD rental market. People may just not rent movies and turn more to CST.

Bravestime
04-08-2009, 08:12 AM
So where would the people that make up that $5B turn? Where would they start renting their movies in the absence of Blockbuster?

To other local video rental stores. I have several local video stores besides BB.

Lee Stewart
04-08-2009, 08:14 AM
BBi has almost 5200 stores in the USA alone:

http://en.wikipedia.org/wiki/Blockbuster_Inc.#Retail_operations

Bravestime
04-08-2009, 08:30 AM
....and there is 4,000 combined Movie Gallery stores operating in USA.

http://en.wikipedia.org/wiki/Movie_Gallery

Chris Gerhard
04-08-2009, 08:39 AM
....and there is 4,000 combined Movie Gallery stores operating in USA.


http://en.wikipedia.org/wiki/Movie_Gallery

I don't think that is even close to true now. I have seen dozens of Movie Gallery and Hollywood Video stores close within my area of travel in the last couple of years. This quote from that Wikipedia article is surely much closer to true:

It has over 2200 stores in North America, operating mainly under the Movie Gallery, "Game Crazy", and Hollywood Video brands. The company emerged from bankruptcy on May 20, 2008.

Lee Stewart
04-13-2009, 04:31 PM
Standard and Poor’s Lowers Boom on Blockbuster

By Erik Gruenwedel | Posted: 13 Apr 2009
[email protected]

With its credit worthiness already relegated to junk status, Blockbuster Inc. April 13 received another blow when Standard & Poor's Ratings Services placed the Dallas-based DVD rental giant on default notice.

The service removed Blockbuster from its list of troubled companies and into a more dire status by cutting the credit rating two notches from “B-“ to “CCC,” which indicates there is risk of default or bankruptcy within the next 12 months.

The reduction comes despite the fact Blockbuster last week said it had amended its credit revolver, including securing $250 million in a refinanced loan due Sept. 30, 2010. The loan requires prepayments of $311 million over the next 18 months.

“While we recognize that getting the amendment is a positive that extends the revolver rather than not having a revolver to begin with, we feel that there is significant near-term risk,” said S&P analyst David Kuntz.

Indeed, Blockbuster warned in its annual 10-K report that funding of the amended revolver was not assured, and failure to secure funding could jeopardize the business as a going concern.

Kunz said that despite Blockbuster’s ability to generate considerable liquidity (it generated nearly $1.4 billion in revenue in the most recent quarter), he felt the negative amortization of the revolver could pressure liquidity in the near-term.

“The company’s capital structure is likely find liquidity at or near minimum cash levels required to operate the business during certain periods during 2009,” Kunz said. “That’s not good.”

Separately, Fitch Ratings last week said it considered Blockbuster’s outlook stable despite also giving it a “CCC” rating. Fitch said its opinion was based in part on Blockbuster’s “market leading” 37% market share in the video rental business.

It also lauded CEO Jim Keyes’ efforts to transition Blockbuster from rental pure play to also include sellthrough and digital initiatives.

“I think it goes to show you that there are a lot of differences of opinions out there on Blockbuster,” said Edward Woo, analyst with Wedbush Morgan Securities in Los Angeles.

He said he believes Blockbuster to be stable despite the fluctuating stock price and general uncertainty surrounding the company.

“One of them is wrong,” quipped co-analyst Michael Pachter.

Blockbuster shares closed up 3 cents to 80 cents per share.

http://www.homemediamagazine.com/blockbuster/standard-and-poors-lowers-boom-blockbuster-15336