Blockbuster warns of imminent bankruptcy

Blockbuster is on the verge of declaring bankruptcy under the weight of competition from Internet services, sources said late Thursday. Attendees of a top-level meeting told the LA Times that Blockbuster was warning major movie studios of a "pre-planned" Chapter 11 bankruptcy likely for mid-September. The move would give it a chance to reorganize, offloading at least some of its $920 million in debt and letting it out of lease requirements for at least 500 failing stores.

The chain was compelled to talk to the studios as it wanted to reassure them that Blockbuster would still exist and keep the flow of movies intact. Bankruptcy would give significant control of the company to debtors and could cast doubt on the events without advance notice.

Spokespeople from the company didn't comment on the claims.

Blockbuster's fall has been years in coming but has accelerated rapidly in recent months as it has been overwhelmed by Internet-based competitors, most of all Netflix. The failing company has a small Internet video service backed by CinemaNow but also has the burden of a primarily store-based rental system; its stores can only carry a limited amount of stock and are tied to a per-movie rental system. Netflix has its own, more popular Internet service and for physical copies isn't tied to expensive stores with limited stock, instead providing a much wider selection through the mail.

Pure Internet video has also had an impact. Apple's iTunes is commonly considered the largest per-title rental service, but the Zune Video Marketplace on the Xbox 360, Amazon Video On Demand and others also give customers little incentive to visit a real-world store. To support Blockbuster and discourage these services and Netflix, movie studios have tried to impose delays on availability, but these have had relatively little effect.

By Electronista Staff

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