Will Blockbuster Corporate fall apart like so many other huge corporations? It's looking more and more like it every day...

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Eye of the Storm for Big Blue
Author: ERIK GRUENWEDEL
[email protected]
Posted: August 18, 2005
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These are truly the dog days of summer for Blockbuster Inc. The top rental chain recently reported a quarterly loss of $57.2 million, saw its stock price sink to an all-time low and had its debt junk-rated.

The company, which reported $138 million in available cash as of June 30, spent $190 million during the first six months of fiscal 2005. It has more than $1.2 billion in long-term debt costing $17 million per quarter in interest. And the company has spent $850 million of a revolving credit facility.

The rising debt and $150 million drop in operating income reportedly forced Blockbuster into negotiations with its lenders to avoid default. Moody’s Investors Service slashed Blockbuster’s debt below investment grade to B3, or junk status.

Typically, the lowest debt rating a company can have and still raise financing is BB-, analysts say. When the debt goes into default, bondholders can assume control of the company and shareholders are left at the end of the line.

“This company is done,” said a venture capitalist, who asked his name not be used, after studying Blockbuster’s 10Q filing with the Securities and Exchange Commission. “They don’t have the ability to support this kind of debt, which means they have to raise some equity. They have to start issuing some more shares, and the stock price is below $7. And it is still going down. There is no way [they are] going to be around much longer.”

Online mystery
Media analyst Marla Backer, with New York-based Research Associates — Soleil Securities, agreed Blockbuster’s debt isn’t good but doesn’t think it is insurmountable.

Backer said she is pleased Blockbuster increased its online subscription fee by $3 to rival Netflix at $17.99 and believes the company will be more cost-conscience going forward.

Blockbuster chairman and CEO John Antioco, in a statement to investors, said the company would not repeat the $100 million expenditure on assorted initiatives — notably subscription-based Blockbuster Online — that it did in the fourth quarter 2004.

The online service has 1 million subscribers and expects to reach 2 million members by the end of the first quarter 2006, according to filings. In addition to distribution centers across the country, Blockbuster fulfills online orders from 200 retail stores with plans to increase fulfillment from 1,000 stores by the end of the year.

Arvind Bhatia, analyst with Southwest Securities, said he would like to see more clarity on the online program, including details on subscriber acquisition costs, churn rate and subscriber additions.

“The lack of metrics regarding the online business makes it difficult for investors to evaluate its success,” Bhatia said in a research note.

Late fees albatross
A Blockbuster spokesperson confirmed the elimination of the one-out in-store subscription plan and said implementation of ala-carte rental price hikes by 50 cents was neither untrue nor official policy. Retail analyst Dennis McAlpine, with McAlpine Associates, said the rental hikes are not aimed at driving customers online as much as increasing revenue.

Fourth-quarter wishes
Antioco, like much of the movie industry, is pinning Blockbuster’s turnaround on the fourth quarter.

Research Associates’ Backer said a successful fourth quarter, including an uptick in rental activity, organically and not specific to Blockbuster, would be beneficial.

“It is a matter of time before we can really see whether that is in fact true,” Backer said. “But I don’t think it is worth buying the shares on that possibility.”




Also to add, all the corporate leaders for BBV recieved huge raises, as much as 18% of a raise. Isn't that what the leaders of Enron did right before the end? There are so many things they could do to cut costs and make money, but they seem to be unwilling to do that. Maybe one day we will see Blockbuster's with closed signs on them all of a sudden because their creditors came to collect that debt.

Blockbuster may go into bankruptcy, but for considerably different reasons than Enron, and Blockbuster isn't anywhere near the size of what Enron was when it started its descent (Blockbuster does something like $6 billion a year in revenues. Enron did close to $200 billion in revenues in the year it started falling apart).

The thing is, though, that a $6 billion retail business isn't likely to disappear overnight. They may declare bankruptcy and later emerge with significantly fewer outlets, but despite these significant losses, the company isn't likely to be done quickly.

It would be surprising if there was no Blockbuster five years from now.

But that's just my opinion. Clearly at least on unnamed venture capitalist disagrees.

As I run IHateBlockbuster.com

Well, hopefully they are around until the end of the year at least....I'm going to pre-order my XBOX360 today

Only the stockholders will get messed up in this.

I mean, I lost a lot of money on Boston Chicken when they went bankrupt - but they are still around.

Sell short-->profit

So, Blockbuster's cooking their books and robbing the pension fund now?

I thought that was Wallmart now? All these evil inhuman corporations are all the same to me.

I kind of think maybe the prediction they won't be around much longer may be a chicken little cry. Will the corporation that runs them be around much longer? That's difficult to say, but if they keep on going the way they are, I don't see how they could. But I think the Blockbuster name itself would just be sold off to another company. Viacom already dumped them, but somebody out there might be willing to take a chance on a bankrupt company if they see the potential to make money off of it. And the corporation that runs them now could be making money off of it if they really wanted to.

I am sure there is more to it than closing stores that are extremely close to each other and cutting back the hours of operation (do they really need to be open til midnight? What about 11? Wouldn't that save a ton of money right there?) but those are good places to start rather than bleeding sixty million a quarter. It's almost as if they want to maintain this public image that everything is all right and keep things just the way they are, damned the consquences. That is what will get them into trouble.

Well, they tried to do the McDonald model of oversaturating markets with Blockbusters. Luckily for Mcdonald's, though, and unluckily for BorringBuster, you can't send hot hamburgers through the mail, whereas DVD's are easily and cheaply mailable.

Doesn't help that they overorder tons of the same crap and have very little selection outside of teh mainstream. Their 'innovation' of turning late rentals into sales didn't brought the hoards of DVD renting customers back either, surprise

I don't know if a national Video Rental chain is really viable anymore. Get one horrible experience at a BB, it doesn't make you feel like going to another one does it?

BBV or not, I simply would never darken the door of a video store for rentals. The only thing I've used BBV for in the past are some good deals on preordered DVDs that hit their computer at 26.99 in the past. If they go under, that's the only thing I'd miss

Even if they do go bankrupt, I imagine that someone else would just buy them up and try again. There are a lot of things they could do to cut costs, as someone else has mentioned. Giving raises to the execs probably isn't one of them, though.

I wouldn't miss them, other than it would mean that the people going to get raped at Blockbuster would end up going to my video store, leaving me with less movies to pick from.

If Blockbuster is going bankrupt I hope they can wait until I use up my remaining gift cards. I still have over $200 dollars remaining from the DVD trade in promotion they ran last year.

Unfortunately I don't think Blockbuster is going anywhere anytime soon. I read an article a few weeks in a trade magazine and they talked about BBV reporting a loss. The article basically said that their no late fees is what's doing them in. It stated that the same quarter last year brought in 100+ million in late fee revenues and without that, BBV went into the loss column. I thought from the beginning the whole no late fees deal was a stupid decision. Maybe BBV will see that and start charging late fees again. Anyone that has ever been in the rental business knows that late fees are a huge part of the income and without that, you probably won't do all that well.

Funny, Blockbuster was in bed with Enron in one of their totally made-up, never-really-existed-but-booked-as-profitable-business.

Enron and Blockbuster break it off

Topic drift...
Anyone else think we, as a country, today are getting shafted by the oil companies the way enron fucked over california's electricity market back then? Accotrding to the Economist there is no oil shortage just a shortage of operational refineries - more than half a dozen have shut down this summer for "repairs." That sounds an awful lot like all of those power plants in california that were "shut down for repairs" just as the price for electricity went supernova. hhhm...

same here, except I have over $600

Looks like they are trying cut backs, at least in my area. Some of the smaller BBV stores are closing an hour earlier each night now.

I am less than a week away from switching back to Netflix. BBO has been completely out of control for the past several weeks (sending random titles way down in my queue, delaying shipments for several days etc.) It really sorta saddens me as I enjoy getting the free rental coupons every month but something is going down over there.....and it doesn't look good. Bummer.

Just today I burned off the last of my store credit from the $8 DVD trade-in thing.

Well, I for one cant wait till they die a most violent death (although I dont think it is going to happen). It would be worth me giving up the $78.00 I still have in credit with them for the past 6 months if it meant they go away. When I go into a movie store and ask if they have the 25th anniversary Blues Brothers dvd that came out today and the reply I get is, "Isn't that coming out in the movies this Friday, Im pretty sure I would know if that was coming to dvd and I havent heard anything about it", there is something wrong. He also didnt know what the hell Ong-Bak was either and asked me why people keep asking him about it, but I guess that is another story...

This was the opposite at my local BBV. They broke street date by a whole week. Didn't feel like reporting them since I'm on good terms with the manager and one of my friends works there

Damnit, you beat me to the punch! Not many people know about that on and I like pointing it out to my customers. Yes, I work for Big Blue, but only for a paycheck.

There was a guy on the radio a few days ago from the Illinois Petroleum Marketers' Association. He said, and I quote, "You don't have to worry about supply, you will be able to buy all the gas you want. You just have to pay more for it." Goddamn they are getting brazen.

I am not willing to shell out money to subscribe to the Economist to read that article, especially with gas prices what they are. Does anybody have the full text to the article?

Let them die!!!

Blockbuster does deserve to die out. Their customer service is appalling and their Blockbuster online is seemingly getting worse rather than getting better.

I mean, I was with Blockbuster. My next billing date was listed as 8/19. I canceled late in the day on 8/18, but they had already charged my credit card for the month of 8/19-9/19 by the time I canceled on 8/18. So they charge me for another month but don't allow my to use the account starting 8/19. When I complain, they tell me I didn't cancel quick enough.

The bank reversed the charge, but it's still an annoyance.

The best part was the whole "We want you back" email I received on 8/25. Of course they want me back, they're charging me without having to provide any service. Everybody would love a customer like that.

I guess they have to make up those losses some how.