Blockbuster Blames the Red Menace

24 Feb, 2010 By: Stephanie Prange

Blockbuster CEO Jim Keyes is seeing red — as in Redbox kiosks — in his explanation for the chain’s continuing woes.

Redbox, that wily competitor, has successfully been working around the windows imposed on it by Warner, Fox and Universal, he said in a conference call, and that’s why Blockbuster posted continued negative same-store rentals in the fourth quarter.

But now that Warner has struck a month-long window deal with the Red Menace, Keyes hopes Fox and Universal (both embroiled in lawsuits with the kiosk company) will do the same. That could give the chain an edge and prevent further store closures in the future, he said. Also, the closure of Movie Gallery and Hollwood Video stores could prove a boon for the company, he added.

“We remain cautiously optimistic ... with tailwinds becoming clear,” Keyes said.

Heck, Blockbuster couldn’t ask for a better hand of cards dealt it in recent months. The studios are forging later windows for competitors Netflix and Redbox. The only other big rental chain still kicking, Movie Gallery, has filed bankruptcy for the second time in three years. And yet nothing seems to move the needle much on Blockbuster’s fortunes.

There may come a time when blaming the Red Menace and other competition won’t hold water — when the real menace, Blockbuster’s crushing debt, mostly inherited when it spun off from Viacom years ago, will bite back with a crushing blow. Just before the chain’s financial results hit the wires, Blockbuster reportedly hired legal and financial experts to help it to restructure nearly $1 billion in debt. That debt has been the real villain in Blockbuster’s struggles. It prevented the chain from quickly modernizing, advertising and innovating in ways that could have held off the likes of Redbox, Netflix and others. The Red Menace may be the cause du jour of Blockbuster’s troubles, but it’s the debt that may eventually do it in.

Blockbuster Blames the Red Menace

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