Critical List: Blockbuster

Blockbuster has fallen a long way from its 1990s heyday. What next for the ailing DVD chain?

by
Last Updated: 23 Sep 2010

Founded in 1985, video rental store Blockbuster was going gangbusters in its 1990s heyday. Its shelves groaning with the latest releases (plus a wide selection of teeth-rotting snacks), it was the go-to destination for anyone wanting to settle down in front of a film on a quiet night in. But in recent years the US chain has been hit hard by the growth of online rental services, and it has struggled to reinvent itself, while debt levels have soared. Could this be the last reel for Blockbuster?

Danger signs
Last year, the company's shares were suspended by the New York Stock Exchange after plunging by 86%, amid rumours that Blockbusters was about to go bust. It sought the advice of law firm Kirkland & Ellis, a restructuring specialist, on debt refinancing and capital-raising - and a few months later, Blockbuster announced that it would be shutting 960 (roughly a fifth) of its US stores; hundreds more have closed worldwide. Sadly, this doesn't seem to have helped - in the year to 3 January 2009, Blockbuster posted a loss of $558.2m. And its 6,500 outlets worldwide continue to feel the squeeze from online by-mail providers, such as US-based Netflix and UK firm LoveFilm. Adding to its woes was the news that both billionaire investor Carl Icahn and long-time investor Jackie Clegg Dodd have jumped ship - if they don't believe the company has a future any more, what hope is there for the rest of us?

Prognosis
Blockbuster isn't fading to black just yet. It is hastily seeking to expand into new distribution channels, and trying to reduce its $1bn debt burden: it sold its 186-store chain in Ireland for an estimated $45m in cash last August, and has slashed its US advertising budget by $200m. Its independently managed European arm is also up for sale, for a reputed £50m, putting 650 UK stores on the block and 5,000 jobs on the line. But with more and more of us getting hold of films through the post or over the internet, the question is: will anyone want it?

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