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Blockbuster (BLOAQ) |
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WIKI ANALYSIS| This company has recently filed for protection under Chapter 11 of the U.S. Bankruptcy Code. |
Blockbuster Inc. (PINK:BLOAQ) is an American chain of rental stores that offers movies, video games, and other forms media entertainment on a subscription basis. On September 23, 2010 Blockbuster declared bankruptcy, entering a recapitalization plan through which it hopes to reduce its debt from $1 billion to $100 million via a debt-for-equity exchange[1]. The company will continue to operate in the ordinary course of business but "debtors in possession"[2]. Blockbuster recorded revenues of $4.1 billion and net loss of $569 million in fiscal year 2009. In March 2011, the U.S. Bankruptcy Court in New York authorized Blockbuster to conduct an auction process for the Company. Blockbuster has entered into an asset purchase agreement with a "stalking horse" bidder, Cobalt Video Holdco, LLC, a limited liability company formed by funds managed by Monarch Alternative Capital LP, Owl Creek Asset Management LP, Stonehill Capital Management LLC and Värde Partners, Inc., each of which is a secured noteholder of the Company. [3] In April 2011, Dish Network won a bid to buy Blockbuster for $320.6 million.
Company Overview
Headquarted in Dallas, Texas, Blockbuster has traditionally been a brick-and-mortar business model, it has expanded into out-of-home DVD rental kiosks as well as an online rental and sale platform that delivers movies digitally and by mail[4]. This expansion away from its core movie rental model has been an effort to compete with fierce online rental service rival Netflix and to capitalize on consumer trends.
Business Segments
Blockbuster recorded revenues of $4.1 billion and net loss of $569 million in fiscal year 2009. Its businesses are divided in the several segments: In Store, By Mail, Vending, and Download to PC.
In Store
Blockbuster's stores offer new and traded movie and game rentals to their customers, including the addition of Blu-ray DVDs into their product mix in 2007. Additionally, over 400 of those locations include a game store-in-store concept operating under the GAME RUSH brand[5]. Junk
By Mail
Blockbuster offers an Internet-based subscription service with a DVD library of over 90,000 movie titles and video games through Blockbuster.com that can reach customers who are not within Blockbuster movie rental outlets[6].
Vending
Blockbuster is a growing player in the nascent vending channel and looks to expand its physical distribution of media entertainment. It has signed a contract with NCR to establish machines in over 2,500 locations.[7].
Download to PC
Blockbuster integrated its online rental services with Movielink, LLC, an online movie downloading business with one of the largest libraries of digital content for both rental and sale, which it purchased in 2007. This has allowed it to take advantage of the trend away from the brick-and-mortar industry business model and match the unique services of competitor Netflix.
Trends and Forces
Cyclicality of Retail Sector
The retail sector is highly volatile, with contraction and expansion closely pegged to the business cycle. When the economy is growing rapidly, demand for discretionary products like DVDs and video games increases, whereas in a downturn demand plummets. Because of structural weaknesses in the U.S. economy, Blockbuster suffered from lower store traffic and witnessed drops in same-store revenues[8].
The Future of Media And BBI's Brick-and-Mortar Model
The technological developments in the in-home entertainment industry have increased the amount of competition for companies like Blockbuster. In recent years the rise of online rental services, online viewing, video on demand services and other such new-media fields have brought new competitors into their market. In order to remain a significant player in the in-home entertainment industry Blockbuster has to remain at the cutting edge by providing their products in the newest ways. Their Total Access program, the acquisition of Movielink, and the re-shelfing of their merchandise with HD and Blue-Ray discs are examples of attempts to take advantage of the growth in non-conventional rental services.
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Saturation in Kiosk Distribution Market
Through a partnership with NCR to deploy a total of 10,000 kiosks, Blockbuster is trying to expand into more consumer-convenient distribution channels[9]. However, the current market leader and kiosk movie rental pioneer, Redbox, has established machines in over 15,000 locations across the United States[10]. The fortune of pioneering kiosk rentals has allowed Redbox to select the most accessible locations possible, posing substantial barriers to entry for firms like Blockbuster, who must resort to relatively inaccessible locations for their kiosk business. Additionally, Redbox delivers additional value to consumers via its revenue-sharing partnership with Viacom's Paramount Home Entertainment, which offers Paramount DVD and Blu-ray discs for rental the same day they become available for sale[11].
Competition
Blockbuster distributes its product to customers in three ways: In-store rentals and sales, online rentals, and online viewing. As such there are three areas of competition for the company.
In-Store Rentals and Sales
Blockbuster competes directly with regional or small-scale movie rental chains, though none compare in size or market share to Blockbuster as well as with major retailers which provide stiff competition in the same products that Blockbuster rents and sells to its customers. These retailers include Best Buy, Wal-Mart Stores, and Amazon. Coinstar does not follow the brick-and-mortar model but competes through the Redbox DVD rental kiosks it operates in over 15,000 locations in the U.S[10].
Online Rentals
- Netflix: Blockbuster's main competitor, Netflix, is an online rental service with over 7 million subscribers and 90,000 titles in its library.[12] Netflix offers comparable plans to its subscribers, but also the capability to view movies directly on their PCs for no additional fee. Blockbuster has been gaining some market share from Netflix over the past few years, but rather slowly. Netflix has a very well-established subscriber-base and provides excellent customer service.
- Amazon & TiVo : Amazon launched its "Unbox" service in 2006, which provides customers the ability to rent movies through their PCs for download. Amazon teamed up with TiVo on this project so that TiVo owners can download movies directly to their DVRs for viewing at home.
Online Viewing
Blockbuster's acquisition of Movielink brought them into the online viewing market after a few established players already had a solid hold. Amazon is one such example with their Unbox service. Netflix already offers all of its subscribers a way to view videos on their PCs and at no additional charge. Blockbuster has not made any move to give away Movielink privileges to its Total Access subscribers. The entire online viewing market is also very susceptible to piracy and intellectual property violations. Websites providing pirated television shows and movies, while illegal, are widespread.
References
- ↑ "Blockbuster Files for Bankruptcy Protection," 9/23/2010
- ↑ Blockbuster 8-K, 9/24/2010
- ↑ http://investor.blockbuster.com/phoenix.zhtml?c=99383&p=irol-newsArticle&ID=1538613&highlight=
- ↑ "Blockbuster Company Profile" Thomson Reuters
- ↑ Blockbuster FY2008 10-Q Item 1, pg. 2
- ↑ Blockbuster, "How It Works"
- ↑
- ↑
- ↑ Blockbuster 2Q09 10-Q pg. 32
- ↑ 10.0 10.1
- ↑ "Paramount, Redbox Extend Revenue-sharing Pact," 06/15/2010
- ↑ Netflix Annual Report, 10-k
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