Blockbuster Bankruptcy in Works Could Shut 800 Stores

The economic and technological changes in how people consume home entertainment have finally caught up with Blockbuster, once the leader in home video rentals. According to several published reports quoting sources familiar with the situation, the chain will enter a "pre-planned" bankruptcy in mid-September that will allow it to restructure a debt load of nearly $1 billion as well as escape leases on 500 to 800 of its worst-performing brick-and-mortar stores.

Blockbuster has lost a total of $1.1 billion since the beginning of 2008, and interest payments on its $920 million in debt have held back efforts to grow the business and adapt to new DVD delivery and consumption models, such as delivery by snail mail (Netflix) and on-demand distribution. Earlier this month Blockbuster announced that most of its debt holders had agreed to forbearance on interest payments until September 30, when the chain would attempt a recapitalization.

According to a report in the Los Angeles Times, getting out of leases on its worst-performing stores is a primary goal of the bankruptcy process. The article reports that Blockbuster is looking at closing 500 to 800 stores. The chain operates 3,425 stores in the U.S.; Blockbuster closed nearly 1,000 stores in the last year alone.

Blockbuster is in discussions with the major film studios in an attempt to keep the flow of DVD releases going during its bankruptcy, which it hopes will last five months. Assuming the chain makes a successful exit from Chapter 11 protection, it will continue to grow through non-retail initiatives. Blockbuster is already working with Comcast to offer its by-mail service to its customers, and plans to grow its Blockbuster Express presence to 6,000 automated retail machines deployed by NCR. The company is also expanding Blockbuster On Demand through partnerships with Verizon Wireless and two manufacturers of Blu-ray players.

The retailer posted disappointing results for the quarter ended July 4, 2010: a 19.7% drop in total revenues to $788 million, from $982 million from the same period in 2009. Net loss for the period was $69 million, affected both by store closings and declines in comp-store sales.

For related article read: Bankruptcy Watch: Eight Retailers in the Red