Blockbuster Mulls Bankruptcy Filing
DALLAS - It's a story that signals the end of an era. For the better part of three decades, movie lovers fed their habits by renting VHS videocassettes and DVDs at video stores. Now the chain that defined home video is teetering on bankruptcy. Dallas, TX-based Blockbuster Inc. warned that it may have to file for Chapter 11 bankruptcy protection in the U.S.
The chain has seen new competition emerge on several fronts. In the U.S., these include online movie-rental services like Netflix, and Redbox movie-rental vending machines. In both Canada and the U.S., Internet downloads (through services like Apple's iTunes store as well as through illegal downloads) and cable-TV video-on-demand services have offered consumers other ways of watching movies.
"The increasingly competitive industry conditions under which we operate has negatively impacted our results of operations and cashflows and may continue to in the future," Blockbuster said in a filing with U.S. regulators. "These factors raise substantial doubt about our ability to continue as a going concern."
In its filing, Blockbuster said it would seek a debt-for-equity swap as a way of easing its debt load. Amid concern that such a swap would dilute shareholder value, Blockbuster’s share price tumbled more to 29¢ (U.S.) from yesterday’s close of 40¢ on the news. In the spring of 2005, Blockbuster shares were selling for more than US$10.
Blockbuster has also said that it plans to close additional locations, and wants to sell some international operations to raise cash. But Tom Casey, the company’s Executive Vice President and Chief Financial Officer, told Marketnews that those plans do not include Canada. “We have been public about wanting to sell our business in Europe,” Casey said. “We’re well positioned with our 460 locations in Canada. Our Canadian operation is solidly profitable and well managed. Its assets are not pledged, and we have no debt in Canada.”