Blockbuster, Inc., once a video-rental powerhouse, released news they may need to file for financial protection. This marks the second time in a year a big-name brand has released a statement warning of a pending bankruptcy filing, according to The Wall Street Journal.
The video-rental superstore is struggling in the face of fierce competition from NetFlix and cable "Video On-Demand" services that allow video rentals with the punch of a couple buttons on your remote control.
After all, why hassle with driving to a store, hoping your movie is in stock, renting it, and returning it when you can order the same thing from the comfort of your recliner? The movie-rental chain is fighting to maintain their short-term liquidity, while striving to solidify their move to a relevant business model.
In just a few years, the brand's gone from blockbuster to lackluster, and the video empire's efforts to remain in the entertainment game have been both too little and seemingly too late. The entertainment company had a disastrous 2009, and in the third quarter, it was reported they were going to shutter nearly 1,000 stores as the kingdom they once reigned deserted them.
To their credit, Blockbuster tried to stay relevant. However, when operating thousands of bricks-and-mortar stores requiring rent, signage, employee wages, etc., the shift to a consumer-relevant business model proved nearly impossible to accomplish. Rather than giving up their storefronts, the chain decided to investigate options like video games, concert tickets, and even specialized DVD players that would be able to download movies from Blockbuster.com. Unfortunately, these options are already available where Blockbuster's presence isn't as big as their brand name: online.
The Wall Street Journal reports: "In a filing late Tuesday, Blockbuster said its declining sales and cash flow, coupled with increasingly competitive industry conditions, 'raise substantial doubt about our ability to continue as a going concern.'"
While Blockbuster works to buy more time for their 3,750 company-operated stores (and 606 franchised stores), it's a question of whether investors will able to see beyond the dying business model into the company's strategy for rebirth. Blockbuster remains optimistic, but the word on the street is the chain's days are numbered.
One Wall Street credit analyst wrote her clients that although Blockbuster rebounded in fourth quarter 2009, "It may not be possible to turn Blockbuster's business around."