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Blockbuster’s Debt Load Weighs Down Vital Marketing

21 Apr, 2010 By: Stephanie Prange

When was the last time you heard or saw an advertisement for any of Blockbuster’s rental services? How many times in the last week have you been bombarded by ads for Netflix?

My answer to No. 1: I can’t remember. My answer to No. 2: numerous times, on radio, on TV and on the Internet.

That, in a nutshell, is one big reason why Blockbuster’s by-mail service only has about 1 million subscribers while Netflix has nearly 14 million.

Sure, Netflix got a big headstart in online disc rental, but Blockbuster’s by-mail service is a good one that offers the most recent releases and in-store returns — something not available at Netflix. I recently met a family that subscribes to the Blockbuster service in part because of the in-store option. Also, I recently heard a colleague — a Netflix subscriber — say she entered a Blockbuster for the first time in a while because Netflix didn’t have The Blind Side yet.

These are advantages that Blockbuster should be crowing about every day, but with nearly $1 billion in debt it’s hard for the rental chain to scrape up the kind of money needed to blanket the market the way Netflix does.

That’s why Blockbuster’s lenders should be making every effort to relieve some of that debt load from the company. If they want to get anything out of this chain and not force it into bankruptcy, the lenders need to give it some breathing room to advertise its still-viable and in-demand services.

Indications are that this is happening. The company announced April 16 that it will delay the annual shareholder meeting for a month so management can “complete one or more” ongoing recapitalization initiatives, in addition to possibly resolving non-compliance issues with the New York Stock Exchange. The annual meeting was pushed from May 26 to June 24.

Blockbuster’s fortunes over the past few years might have quite different without a debt load that its competitors didn’t have. It’s time the lenders realize it will be a lose-lose situation if the chain isn’t allowed to market itself. Without the positive push of advertising, all consumers hear about Blockbuster is bad news. It’s not the kind of message that the chain needs to pay back investors, keep existing consumers or find new ones.

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