Movie rental company Blockbuster: may not be able to stay in business

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Movie rental company Blockbuster: may not be able to stay in business

Mon Apr 6, 7:11 PM

The Associated Press

By The Associated Press

NEW YORK - Movie rental company Blockbuster Inc. said Monday the risk that it

may not complete financing deals raises " substantial doubt " about its ability to

continue as a going concern.

Dallas-based Blockbuster, which has struggled amid the rising popularity of

DVD-by-mail services like Netflix, disclosed the warning in a filing with the

U.S. Securities and Exchange Commission. The company had already cautioned last

month that its auditor was likely to raise doubts about its ability to stay in

business.

A going-concern qualification refers to an auditor's assessment of a company's

ability to continue to operate for the foreseeable future.

Last week, Blockbuster said its revolving and term loan agreement was amended,

giving it a US$250-million revolving loan refinancing that matures on Sept. 30,

2010. Lenders including JP also agreed to waive any default that could

result if auditors attached a " going concern " classification.

But on Monday, the company said its lenders' obligation to fund the $250-million

credit facility is subject to meeting certain conditions, and there can be no

assurances that these conditions will be met.

Even if the loan is funded, the company said it " may not have sufficient

liquidity to finance the ongoing obligations of our business, which raises

substantial doubt about our ability to continue as a going concern. "

Blockbuster said it believes that it will be in a position to close the amended

credit facility by around May 11, though " there can be no assurance regarding

these matters. "

Shares fell three cents to 85 cents in after-hours trading, having closed

earlier at 88 cents.

[Guest guest]

" Movie rental company Blockbuster: may not be able to stay in business "

Thank goodness. I was hoping the company would crash.

I am sure pirating partly contributed to their downfall, but there are other

video chains doing a great business. One of these is Hollywood Video.

Where Blockbuster failed was their pricing. By us, ten years ago it cost $4.00

to rent a video overnight $6.00 for a three day rental. And the late fees were a

dollar a day. Their selection was poor, current videos were usually already

rented and not in stock when you wanted to rent them, and when they sold off the

used overstocked rentals, they tried to sell them at prices you'd nearly pay for

new videos ($17.95 instead of $19.95). You could also buy a package deal where

your overnight video rental of one movie came with a two liter of pop and two

microwave popcorn packets. This would cost you twelve dollars.

Considering that most Blockbusters were located right next to drug stores, you

could just rent your video for $4.00, go next door and buy a two liter for

$1.79, and buy a pack of six microwave popcorn bags for $3.00. Total cost: $8.79

plus tax. Whereas with the Blockbuster package deal it was $12.00 plus tax.

The stores were using profits to expand, but they expanded into areas where

people hardly rented videos or could not afford to rent them thus franchises and

stores were unprofitable, yet they stayed in those locations to advertise " brand

presence. "

The employees were typically poorly trained and not very knowledgeable about

movies. Returned videos took forever to be reshelved. You'd walk past a return

box to see videos on top of it...maybe the one you wanted to rent sitting there,

and then you'd look for it in the store and it would not be there, and you'd ask

the attendent if you could rent the one on the rental box and they would say no,

it has to be checkedin again. And I thought...how many people are just taking

the videos without paying for them off the top of that box while the person who

returned them gets slapped with late fees? And the reason people stacked them on

top of the box (which stood outside) was because there were always long lines at

the register. There would be two registers, but one person working one register

and another restocking. So you did not want to wait in line forever to return

your video. People just left them outside.

The whole system never improved at the many different Blockbusters near our

house.

This is how they got into the mess. At some point, when Blockbuster was just

getting started, someone had proposed to me that I buy Blockbuster stock, and I

predicted all of this would happen. They looked at me like I was nuts. But I

turned out to be right.

I'm happy they are failing.

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