By : Erik Gruenwedel | Posted: 17 Mar 2010
With Blockbuster’s financial situation becoming dire, analyst John Kraft with D.A. Davidson & Co. in Lake Oswego, Ore., said a possible Chapter 11 filing by the Dallas-based rental giant could escalate store closures and drive consumers to kiosks.
Blockbuster March 16 in a 10K filing indicated it may seek voluntary bankruptcy protection should it not be able to maintain or improve business agreements with studios and lenders, among others issues. The company previously said it would shutter nearly 1,000 stores this year.
Indeed, Blockbuster’s market share fell from 33.3% in the fourth quarter of 2008 to 24.7% in the same period last year, representing a microcosm of the entire brick-and-mortar business, which saw its market penetration fall to 40.7% from 56.6% during the same time periods the year prior, according to Kraft.
By comparison, Redbox increased its kiosk footprint 64.4% during the period with more than 22,400 units.
“We believe Redbox has an opportunity for significant market share gains at the expense of the brick-and-mortar players,” Kraft wrote in a note.
Separately, Needham analyst Charles Wolf said Blockbuster has no ability to extricate itself from more than $900 million in debt — the majority inherited as a special dividend imposed by former parent Viacom when it spun off the cash cow in 2004.
With a sound business plan underscored by a strong brand and multiplatform distribution channel involving Blockbuster Express kiosks, Blockbuster Online by-mail, and Blockbuster On Demand movies, Wolf said the chain should opt for a pre-packaged voluntary bankruptcy.
“A voluntary [filing] would enable Blockbuster to reduce its debt burden and interest payments to manageable levels and [allow it] to implement its strategy for closing underperforming stores and building a digital distribution business,” Wolf told TheStreet.com. “I can see why management is contemplating it.”