Blockbuster on the Block
Fifty-seven percent of respondents to a RetailWire poll
last September said that Blockbuster would emerge as a "somewhat" or "much
weaker" company
coming out of Chapter 11 bankruptcy protection. Well, the video entertainment
chain is still going through its reorganization, but a new twist has been added.
A group of note holders in Blockbuster have joined together to make a "stalking
horse" bid for the company.
The investors, Monarch Alternative Capital,
Owl Creek Asset Management, Stonehill Capital Management and Värde Partners,
have formed Cobalt Video Holdco, LLC, with no real intention of acquiring Blockbuster.
The purpose of the bid, reported at $290 million for the chain’s assets, is
to set a minimum acceptable bid for another buyer to acquire Blockbuster.
As
it did when it announced it was seeking Chapter 11 protection last year, Blockbuster
said it expected to continue operating as usual while the sale process goes
on.
"By initiating a sale process at this time, we intend to accelerate our
Chapter 11 proceedings and move the company forward. An auction will allow
the company to invite competing bids from both strategic and financial investors.
This will also allow for the consolidation of ownership of the company to those
with a clear and focused vision for Blockbuster’s future," said
Jim Keyes, chairman and chief executive officer of Blockbuster, in a statement.
"The purchaser will be able to take full advantage of Blockbuster’s
many strengths, which include an internationally recognized brand name, an
exceptional library of more than 125,000 titles, millions of loyal customers,
and a multi-channel content distribution platform," Mr. Keyes said. "Because
of its ability to deliver physical content (through DVDs) and digital content
(through streaming), Blockbuster can offer customers the unique ability to
access any movie, any time."
Companies interested in getting in on the
Blockbuster bidding will have roughly 30 days following court approval to submit
bids for the company. An auction will be held approximately one week later
with the closing expected to take place by April 20 at the outside.
Discussion Questions
Discussion Questions: What is the best possible scenario for Blockbuster coming out of the bidding process for the chain? What is the worst?
Call me a cynic on this one but I think it’s a matter of time before we have something like an iFlics–the video equivalent of iTunes. It seems that any content that is so easily digitized and distributed can’t stay in the purview of physical retail for too long.
As for the deal, setting a minimum bid is fine–provided you think somebody will be willing to meet it. Were there “stalking horses” for buttonhook manufacturers’ stocks?
At best, Blockbuster emerges leaner, with fewer stores, a renewed emphasis on streaming, and most of its customer base intact. At worst, it receives no bids or greatly reduced bids and continues to flounder. Either way, it’s going to be hard for Blockbuster to regain strength given the competitive landscape.
I’ve never understood why consumers would bother with Blockbuster. There are several better streaming services, and if you insist on having a DVD right now, there’s a Redbox on every corner. Blockbuster is behind the times and it’s too late to catch up.
Worst case is the Circuit City scenario where they liquidate the physical assets and sell the streaming platform to someone that wants to compete with Netflix and Amazon.
Best case is they find a buyer and buy some time before getting on the worst case scenario above. It’s not pretty.
I’m an optimist but I have trouble seeing a long-term survival strategy here. There is plenty of competition for both DVD formats (Redbox and Netflix) as well as digital delivery (Netflix, Amazon and so on). Blockbuster grew by being the Walgreens of the movie business–but when they lose their key competitive advantage of convenience, what’s left?
Blockbuster only survives today because of late adopters. Blockbuster’s delivery model is slow, expensive and inconvenient. How many years has it been since Blockbuster has been competitively current and relevant? That’s how long observers have been asking how much longer they can continue.
So, give them credit for perseverance. The brand may have resonance in an afterlife. But for the Blockbuster that exists today, well, to paraphrase the late, great Don Meredith, turn out the lights, the party’s almost over.
Best Scenario – Netflix picks up the assets. I think an independent group of investors would lose their shirts.
I agree with Liz. Let Netflix take over the assets. Blockbuster as it exists today is ready to be put to sleep.
Like many blockbusters, this is a story with lots of hype, some initial excitement, but then a unravels leaving you with an unsatisfying ending. The purchaser gets a brand that is associated with video in the “old days.” That means late fees, 2 physical trips for every interaction, out of stocks, and, yes, sometimes a memorable movie or game experience at home. There is no brand loyalty, titles are not exclusive, and their assets are going to be severely discounted. To paraphrase Arnold Schwarzenegger, “They won’t be back.”
An interesting spin by debt holders trying to maximize the return on their holdings. Will they succeed? Who knows.
As far as the viability of BB, I think the only real asset here is the 125,000 titles. The delivery platform has effectively changed, just as DVDs replaced Laser Disks, but the content is still where the value resides. Even here, there are challenges. At $290 million, each title has to produce $2320 for the deal to make sense. Given that the business is overwhelmingly about new releases, this gets pretty dicey. Then there’s the issue of all the leases on the 4-wall space, which is a major liability.
Sadly, my guess is that we’ll be seeing Chapter 7 very shortly. A sad end for, in its time, an innovative and dominating force in its channel.
The best scenario for Blockbuster would be for a brand marketing firm or agency to buy the intellectual property and reinvent the brand (then license it in entertainment-related categories). Any direct association with physical stores will bring back the taint.
OK, I’ll take the bait and argue for Blockbuster’s continued success. Blockbuster is the only entertainment content provider able to deliver in every channel. And there are plenty of consumers out there who don’t mind dropping into a store to pick up a video while they run errands in the business district. I’m not ready to toss them onto the scrap heap yet!
Tough situation. Especially when they made so many friends all those years as they relished hitting all of us with those outlandish late fees. Some people think they got what was coming to them. They certainly didn’t treat their customers with any respect when they had “the old monopoly” going. In fact, they made loving them so difficult that most of their business ran elsewhere at the first opportunity.
It would seem that (around here anyway) all of their store front competition has packed their bags. I expect that Blockbuster is again the last one to get then news. Turn out the lights and don’t let the door hit you when you leave. You won’t compete, you treat your customers poorly and you won’t adapt.
I could be wrong, I have been before, but I see it this way:
No Block. No ‘er. Just Bust.
There are some positives regarding Blockbuster. 1. They have the contract for the new releases, which give their customers access 28 days earlier that Netflix or Amazon. 2. They also have the games, which appears to have a huge following. 3. They have foreign markets.
I would have thought Amazon would have a big interest in acquiring them, since Blockbuster would give them instant advantages over Netflix.
Amazon would never buy Blockbuster because it would give them a physical presence in every state, which would then mean that they would have to collect state tax on every sale Amazon makes in each of those states.