Blockbuster (BBI) shares ended the day at 22 cents per share and trading was halted today. The shares dropped over 77% today amid news that the company is consulting with advisers about raising capital and restructuring massive debt obligations. Blockbuster is saddled with debt due to the spin off from Viacom. I have believed for awhile now that the company is headed for bankruptcy. Blockbuster continues to claim that the company is not going to file bankruptcy under any circumstances. This appears to be wishful thinking.
The rise of Netflix has killed Blockbuster’s business model. Blockbuster’s core business is as a brick and mortar movie rental business. As Movie Gallery and Hollywood Video have shown, traditional video rental stores are dying out. The company has over 7,500 locations and is the largest video rental service. Blockbuster has seen its market share eroded by Netflix and Redbox. Netflix offers movie rentals by mail and Redbox distributes movies through self service kiosks. Redbox kiosks can be found at McDonald’s, WalMart’s, drug stores and major grocery store chains nationwide. There are now more Redbox kiosks than Blockbuster locations.
I just don’t see how Blockbuster can survive with its current business model. Blockbuster has too many locations and cannot compete on a cost basis. Redbox has the advantage of pricing power and charges only $1 for rentals. Blockbuster has too much overhead to consistently compete with Redbox prices. They can temporarily offer lower prices but Blockbuster loses money on these promotions. Netflix is ahead of the curve in the mail order movie rental business. Netflix has a greater number of subscribers than Blockbuster Total Access and is adding subscribers each quarter. Netflix is now offering movies online via streaming content.
Blockbuster’s best chance for survival is that a private owner with deep pockets like Carl Icahn buys the company. Icahn already own a large number of shares and could help Blockbuster reinvent itself. A new owner could close a large number of stores and place self service kiosks in the remaining locations. The company could then commit to offering more downloadable content and online rentals. Eventually Blockbuster could become an online movie rental business with a few store locations. The whole brick and mortar movie rental business is dying and Blockbuster is fighting to stay alive. It’s a risky concept to change the business model but it seems like Blockbuster’s only shot.
Where to Next for Blockbuster? | Reaction Radio 
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