Blockbuster Filing for Bankruptcy (Really)

Remember the Hollywood movie in which the prisoner on death row anxiously awaits a stay-of-execution call from the governor? Well it looks like Blockbuster won't be getting that call.

After months of what seemed to be nothing more than posturing and delaying the inevitable, the movie rental retailer is finally readying itself to declare bankruptcy.

According to the Los Angeles Times, Blockbuster's bankruptcy could come as early as mid-September. By entering Chapter 11 bankruptcy, Blockbuster will attempt to restructure a debt load of almost $1 billion and extricate itself from over 500 store leases. The company reportedly will retain the support of film studios so it can continue to make new DVDs available through its retail channel.

Blockbuster's financial condition makes bankruptcy the company's only viable option. Blockbuster has lost over $1 billion in two years and has $920 million in debt. Blockbuster could avoid bankruptcy only if it finds a new investor or convinces its debt owners to reduce interest payments, which is not considered likely. The Times reports that the bankruptcy will be “pre-planned,” because most creditors will be in agreement with the move ahead of time. As part of the bankruptcy, the chain is likely to close 500 to 800 of its 3,400 stores. It has already closed about 1,000 stores in the past year.

Blockbuster says that, after exiting what it hopes to be a five-month bankruptcy, it will focus largely on "non-retail initiatives," such as distributing DVDs via kiosks and growing its digital distribution business.

Blockbuster, once the leader in movie rentals, has been stung by competitors Netflix and Redbox, who have used mail and kiosk distribution of DVDs. Increasingly, Netflix has focused its business on digital distribution.

Blockbuster's CEO, Jim Keyes, visited Hollywood last week and had discussions with major film studios. Accompanying Keyes was a retinue of restructuring consultants and senior debt holders, so chances are the sit-downs didn’t focus on the Dodgers’ pennant hopes.