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Analysts Ponder Blockbuster Survival


By Erik Gruenwedel | Posted: 10 Mar 2009

Analysts continue to worry whether Blockbuster can bounce back from the March 3 bankruptcy false alarm that sent the Dallas-based No. 1 DVD rental company’s stock freefalling.

When Blockbuster announced it had retained Kirkland & Ellis LLP, a firm that specializes in bankruptcy, including so-called “pre-packaged” or “pre-arranged” financial reorganizations, speculation it would file for Chapter 11 protection skyrocketed.

Blockbuster spokesperson Karen Raskopf denied a bankruptcy filing was in the works and said the law firm had been hired to help secure additional funding.

Regardless, the company lost nearly $100 million in market capitalization as share prices plunged well below the current 41-cent per share valuation.

At issue: concerns whether Blockbuster can refinance long-term debt obligations that come due this year, including a $200 million credit revolver that matures in August.

“Bankruptcy wipes out shareholders and a 40-cent share price tells you people are fearful,” said Michael Pachter, analyst with Wedbush Morgan Securities in Los Angeles, who tracks Blockbuster. “They have to show us a path for debt repayment or refinancing.”

Fellow analyst Edward Woo said the company had to continue generating enough revenue to pay down debt. Indeed, Blockbuster issued a report stating that domestic same-store sales were up 4.4% in the fourth quarter ended Jan. 4.

“I doubt next week's financials will be enough,” Woo said. “I think investors really want to make sure their debt is going to be OK.”

Luke Shagets, research associate with Sterne Agee in Dallas, said Blockbuster shares had stopped trading on business fundamentals and more as a reaction to credit worries.

Independent analyst Rob Enderle, a strong supporter of digital distribution of entertainment, said with studios looking for alternative channels to move content and generate incremental revenue, Blockbuster increasingly looks anachronistic.    

“For Blockbuster to recover, they need to again look like they are leading the market as opposed being pounded terminally by it,” Enderle said. “While always possible, right now, it currently appears unlikely.”  

Blockbuster reports results March 19. 

User comments

Commented by BIG J
Posted on 2009-03-11 04:23:00

I hope this company closes down. They never show compassion towards low-level employees that do most of the work to keep the stores running. It is only the top-honchos that are benefitting from the profits of the company. Plus blockbuster never has any originality, when Netflix started online renting, they copied it. When Redbox pioneered the kiosk, they want to get into the picture. You have no idea how this company contributed to the close-down of small privately-owned video rental stores because of their greed in killing off all their competition. What goes around, comes around. I predict blockbuster will TOTALLY go OUT OF BUSINESS by the end of the year. I WILL CELEBRATE WHEN THIS COMPANY GOES BANKRUPT!

Commented by BBgirl
Posted on 2009-03-12 08:24:03

Wow, you sound like a disgruntled employee, BigG. While I agree that Blockbuster, like Walmart and so many other corporate giants, are completely evil, and yes, I know first hand how crappy the pay is, you have to admit that having another 30k or so people losing their jobs would be a horrible turn of events.


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