Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

Blockbuster files for bankruptcy

blockbuster.gi.top.jpgA Blockbuster store in San Francisco. By Annalyn Censky, staff reporter


NEW YORK (CNNMoney.com) -- Blockbuster filed for bankruptcy Thursday in its latest attempt to overcome nearly $1 billion in debt.

The movie rental store's U.S. businesses filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of New York. As part of its recapitalization plan, Blockbuster (BBI, Fortune 500) said it would attempt to reduce its debt load to $100 million or less.

In a release Thursday, the company said it has secured $125 million in financing from senior bondholders to keep its remaining U.S. businesses open during the bankruptcy proceedings.

Its stores, DVD vending kiosks, by-mail and digital businesses will continue serving customers. But the company will have to implement major cost-cutting measures to repay its investors, said Michael Pachter, an analyst with Wedbush Morgan Securities.

"Blockbuster is under the gun now to generate as much cash as possible," he said. "When they were run by shareholders, the company was making investments and trying to grow. Now that they've been seized by creditors... Blockbuster will have to manage the business as lean as possible."

Blockbuster has struggled for survival ever since media conglomerate Viacom (VIA) spun off the company in 2004. As a part of the deal, the company had to pay Viacom shareholders a $5 per-share dividend, and the movie rental giant racked up about $1 billion of debt in the process.

The company also suffered losses from unprofitable stores and increased competition from both Netflix (NFLX) and Coinstar's (CSTR) Redbox.

Blockbuster's advantage over its competitors continues to be its selection of new releases and large volume of titles in every store, Pachter said.

But customers who look for lower prices have turned to Redbox, and those who prefer the ultimate convenience of never leaving home often prefer Netflix's by-mail service, he said.

Blockbuster warned of a possible bankruptcy as early as March of this year.

To help solve its debt problems, Blockbuster began shutting down a third of its 4,500 U.S. stores last year, and now operates about 3,000 locations in the United States.  To top of page

Index Last Change % Change
Dow 17,651.26 -99.65 -0.56%
Nasdaq 4,725.64 -37.59 -0.79%
S&P 500 2,051.12 -12.25 -0.59%
Treasuries 1.78 -0.02 -0.89%
Data as of 5:05am ET
Company Price Change % Change
Bank of America Corp... 14.13 -0.23 -1.60%
Freeport-McMoRan Inc... 11.80 -0.21 -1.75%
Apple Inc 93.62 0.57 0.61%
Micron Technology In... 10.00 -0.36 -3.47%
General Electric Co 30.07 -0.56 -1.83%
Data as of May 4
Sponsors

Sections

Tesla CEO Elon Musk had said previously that the automaker would become "cash-flow positive" this year. But in a letter to shareholders Wednesday, Musk signaled that won't be the case after all. More

The jobs market is near full employment with 14 million jobs added since early 2010. Gas prices are cheap. Home prices are rising. The stock market is near record highs. So why does everyone think the economy stinks? More

Oakland-based tech startup Clef hosts dinners for the local community in a bid to resist gentrification and unite all types of industries that make up the city. More

Visa says new software will allow consumers to check out with chip cards as fast as swiping a card with magnetic strip. More