Blockbuster, the video retail chain that has watched its business become decimated by online video and DVD rentals, has two big problems on its hands. One is its balance sheet. The other its business model. It made a move to fix one of them today.
Blockbuster filed for Chapter 11 bankruptcy protection and with that filing, will wipe out all of the existing debt on its books. Existing senior debt holders will get all of the equity in the new company. Subordinated debt holders, preferred shareholders and common stock holders get nothing – The sub debt holders may kick up a little fuss over that treatment. The senior debtors also agreed to led a new $125 million to the company.
While the Chapter 11 takes a lot of pressure off the balance sheet, it doesn’t do a thing for the company’s broken business model. It has tried to get into the online business, but it is a late comer to the game. NetFlix stole the mail DVD rental business from them. And companies like Apple and NeFlix have figured out the online rental model where movies and TV shows are delivered to your computer. The real question for Blockbuster is what part of the rental space is left for it?