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Blockbuster Bailout?

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We can only hope that the federal government does not get the idea of bailing out yet another company: in this case Blockbuster. Why?

Good riddance to Blockbuster. Over recent years Blockbuster became the company nearly everyone loved to hate for many good reasons. Once various alternatives became widely available you had to be an idiot to keep paying the high prices at Blockbuster. My favorite alternative has been Red Box with its very convenient locations in several supermarkets I regularly go to and at only one dollar per night it has saved me huge amounts of money. Others like Netflix, but I prefer not to make any dollar commitment and prefer the flexibility of Red Box. Though I have easy access for watching films on my cable system, the cost is too high. Ditto for downloading.

The key financial news is that Blockbuster has $975 million in debt and lost $569 million in 2009 after interest payments. During the quarter ended Dec. 31, 2009 Blockbuster's same-store revenue dropped 14.7 percent and it reported a net loss of $434.9 million. This explains why there is considerable talk that it will have to file for Chapter 11 bankruptcy protection. Indeed, shares of Blockbuster Inc. sank 30 percent today (March 17, 2010) after the video rental chain gave public notice that it may have to file for Chapter 11 bankruptcy protection. My amazement is that it plunged only 30 percent because it is probably worthless. The value of all of its stock is now just about $50 million, which is next to nothing these days.

Anyone who enjoys alternatives to Blockbuster knows that this is a company that deserves no sympathy and has no future. What idiot banks and other kinds of companies loaned Blockbuster so much money? The same kinds of financial idiots that destroyed the US economy. The company should not be able to convince creditors to restructure a big chunk of its debt and its business will surely continue to deteriorate.

The company has had to close about 1,300 stores and wants to shut down hundreds more. In 2009 the company shut down 586 stores worldwide, including 353 in the US. It had about 5,200 stores worldwide in January 2010, excluding franchised shops. About 3,500 of those were in the US.

A month ago the company had already filed for bankruptcy in Portugal, showing that it faces stiff competition worldwide.

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Blockbuster CEO Jim Keyes who deserves some kind of award for awful management repeatedly downplayed the threat of Netflix and said this in 2008: "I've frankly been confused by this fascination that everybody has with Netflix." What insight! Guess he could not appreciate Red Box either. Indeed, also in 2008, at a time when in-store kiosks with $1 rentals started popping up everywhere, Blockbuster touted its brick-and-mortar business and dismissed the significance of new distribution models.

If major movie studios cut off credit for the DVD renter and retailer, it would likely push the struggling company into bankruptcy sooner rather than later.

I predict that in the relatively near future Blockbuster will go bust, producing more empty stores and even higher unemployment. Many of us will only remember high late fees (recently reinstated), lousy service, too many joyless car rides and too much money spent on terrible movies. Remember CircuitCity?

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Joel S. Hirschhorn is the author of Delusional Democracy - Fixing the Republic Without Overthrowing the Government. His current political writings have been greatly influenced by working as a senior staffer for the U.S. Congress and for the (more...)

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