What's next for Blockbuster?

Now that the video giant has filed for bankruptcy, will it emerge a stronger company or fall into oblivion?

By TheStreet Staff Sep 23, 2010 12:56PM

thestreetBy Jeanine Poggi, TheStreet

 

Now that Blockbuster (BLOKA) has finally filed for bankruptcy, what will become of the video giant?

 

Blockbuster said business will go on as usual as it whips out its $900 million in debt. This means that Blockbuster's 3,000 stores and kiosks and its by-mail and digital business will all continue to serve customers.

 

More than 80% of the company's senior note holders have agreed to support the plan and provide $125 million in debtor-in-possession financing to help support Blockbuster's operations while it undergoes the restructure. Under the Chapter 11, bonds will be converted into equity.

 

While Blockbuster did not reveal a time frame for the restructure, CEO Jim Keyes said the bankruptcy will allow Blockbuster to reemerge as a company better capable of taking on the evolving video market and growing its digital presence.

Still, Keyes did note that the company will evaluate its entire portfolio of stores. This year Blockbuster has already shuttered 1,000 stores, and reports have surfaced that 500 to 800 more closures are possible.

 

Blockbuster has been questioned from as far back as 1999, when Amazon (AMZN) and Netflix (NFLX) entered the market, about the future of brick-and-mortar stores.

 

In an interview with TheStreet earlier in the year, Keyes said he could "never say never" when it comes to completely shedding stores.

 

Then, of course, there is always the worst-case scenario. Blockbuster could follow the same path as now-defunct Movie Gallery, owner of Hollywood Video.

 

After struggling with the same issues as Blockbuster -- losing market share to digital technology -- Movie Gallery was forced into a Chapter 11 filing in February. At the time, Movie Gallery also said it would continue to operate while in bankruptcy, vowing to pay employee salaries and benefits, honor customer gift cards and store credits and pay vendors.

 

Then, two months later, on April 30, Movie Gallery announced it was closing and liquidating all of its stores under a Chapter 7 bankruptcy filing.

 

While Blockbuster may have more staying power than Hollywood Video, the worst-case scenario remains possible.

 

What do you think? Will Blockbuster emerge a stronger company or fall into oblivion? Take our poll at TheStreet.

 

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