Blockbuster says its liquidity constraints and tougher competition may force the company to file for bankruptcy protection.
Zak Stambor , Managing Editor
Blockbuster Inc. says its liquidity constraints and tougher competition may force the company to file for bankruptcy protection. That is, unless it can convince its creditors to restructure a large chunk of the company’s debt or its declining video and game rental business manages to turnaround, according to a filing yesterday with the U.S. Securities and Exchange Commission.
Blockbuster, No. 37 in the Internet Retailer Top 500 Guide, is fighting a two-pronged battle in the movie-rental business. The video rental chain retailer’s e-commerce site seeks to challenge services such as Netflix Inc., while its kiosks, which are owned and operated by NCR Corp., battle kiosks such as those operated by Coinstar Inc.’s Redbox unit.
Despite pursuing new methods of content delivery and availability, the company warned it has limited experience in the new arenas and is uncertain about their potential for success or profitability, according to the filing.
The result of the increased competition has been steadily declining revenues for Blockbuster. In its 2009 fiscal year, domestic revenues declined 20.4% and domestic same-store revenues decreased 15.6%.
“The increasingly competitive industry conditions under which we operate has negatively impacted our results of operations and cash flows and may continue to in the future. These factors raise substantial doubt about our ability to continue as a going concern," said the filing.
To help lessen the company’s debt and declining cash flow, Blockbuster plans to close 500 to 545 stores this year. It also has identified $200 million in potential cuts in staffing and advertising spending.
The company has also begun attempting to purge or franchise its overseas assets. For instance, it sold its business in Ireland for up to $45 million last August.