Is Blockbuster the Next Sirius XM?

Things look bleak for Blockbuster (NYSE: BBI  ) . The DVD rental chain's shares are trading for pocket change, and now even the company is bracing its shareholders for the likely wipeout of a bankruptcy filing.

The word "bankruptcy" appears 17 times in yesterday's 10-K filing with the SEC.  

"The increasingly competitive industry conditions under which we operate has negatively impacted our results of operations and cash flows and may continue to in the future," read the report. "These factors raise substantial doubt about our ability to continue as a going concern."

This may sound familiar to Sirius XM Radio (Nasdaq: SIRI  ) shareholders. Its stock was trading even lower than Blockbuster is today when reports surfaced 13 months ago that it was hiring advisors for a potential bankruptcy filing. The satellite radio provider was days away from a debt repayment milestone it couldn't cover.

Sirius was in discussions with unnamed sugar daddies, but a Feb. 13, 2009 press release set off an egg timer.

"If these transactions are not consummated, it may be forced to file for bankruptcy protection as early as February 17, 2009," the release warned.

We all know the happier resolution. Liberty Media (Nasdaq: LINTA  ) stepped up a few days later, agreeing to lend Sirius XM enough money to make it through, in exchange for a 40% stake. The terms were harsh, but they saved Sirius XM's hide. Shares of the satellite-radio operator ranked among last year's biggest winners.

Who will save Blockbuster, though?

Its creditors could step up, fearing the pennies on the dollar that they might stand to collect in a Chapter 11 bankruptcy. Alternately, Blockbuster might somehow pull itself up by its own bootstraps.

However, yesterday's filing is really a dinner bell for any potential suitors. Rather than try to fight it out with fellow vultures in a bankruptcy court, it's easier for any interest acquirer to make a deal now. As a consumer-facing company, it's also in Blockbuster's best interest not to file for bankruptcy, since that would scare away customers who mistake the move for a liquidation.

Four for the show
Outside of private equity interest, let's look at a few of the publicly traded companies that may have an interest in Blockbuster as either an outright buyout or an opportunistic lender along the lines of Liberty for Sirius XM last year.

  • Amazon.com (Nasdaq: AMZN  ) -- Amazon has wanted in on the DVD rental game for years. One can always argue that Amazon has bypassed physical rentals with its push into digital delivery, but the company still sells plenty of DVD and Blu-ray discs. In other words, it can benefit from inheriting Blockbuster's digital initiatives, but it could also find ways to make the most of Blockbuster's excess inventory of used DVDs through its popular storefront. State sales tax implications would likely dampen an outright buyout, but a minority stake is still an option.
  • Best Buy (Nasdaq: BBY  ) -- Best Buy is years removed from its Musicland mistake, buying and ultimately shedding the music chain as the medium was peaking. Why would it repeat the same mistake on the DVD front? Well, Best Buy is in the best position to maximize Blockbuster's transformation into a more well-rounded entertainment retailer. The Blockbuster brand would also help improve its flick section if it went with a "store-within-a-store" theme. Oh, and Blockbuster is also further ahead in digital migration than Best Buy is at this point.
  • NCR (NYSE: NCR  ) -- If you've seen a Blockbuster Express kiosk, you have NCR to thank. The maker of ATMs and self-checkout scanners is the one bankrolling the DVD-spewing machines. It's hard to fathom NCR buying Blockbuster whole, but it may be the best candidate to come to Blockbuster's financial aid, if only to keep its fledgling Redbox clones running smoothly.
  • Coinstar (Nasdaq: CSTR  ) -- Redbox's parent may not necessarily fear the Blockbuster Express rollout. In fact, it would benefit greatly from Blockbuster's demise on a few different levels. However, if it senses that someone else will come in with an infusion that would help boost Blockbuster's profile, it may prefer to be the one holding the puppet strings. Owning Redbox and Blockbuster Express would also make it easier to offer in-town rivals differentiated kiosks -- and beef up its clout with Hollywood studios as more than just a $1-a-night movie renter.

Amazon.com and Best Buy are Motley Fool Stock Advisor recommendations. Best Buy is also an Inside Value selection, and the Fool owns shares of it. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz is always up for a good movie, with or without a happy ending. He does not own shares in any of the stocks in this article. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (12) | Recommend This Article (18)

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  • Report this Comment On March 17, 2010, at 2:54 PM, ByrneShill wrote:

    If you think amazon will buy BBI I've got a bridge to nowhere to sell you.

  • Report this Comment On March 17, 2010, at 5:21 PM, Sorni wrote:

    What's weird is my local Blockbuster store is always bustling with activity. LOTS of people lined up, and they seem to be spending real money at checkout -- unlike cheapskate me and my little online trade-in account for 13 bucks a month.

    I own some stock now just for shitz 'n giggles, but I hope it survives just out of sentimental self interest.

    (If Post Office stops Saturday delivery, I suspect a lot of people will cancel their online memberships.)

  • Report this Comment On March 17, 2010, at 6:51 PM, TMFBreakerRick wrote:

    ByrneShill, I wrote about Amazon as a potential player for a minority stake but NOT an outright purchase. However, if BBI were to be broken up, I can definitely see Amazon making a play for Blockbuster Express and its on demand business (but not the physical stores).

    Sorni, I have no financial interest in BBI but I do have a lot of respect for Keyes. And if the post office stops delivering on Saturdays it's unlikely to impact Netflix much. It will improve cost structure (moving more people to online delivery and staggering shipments), at the very least -- even if some subscribers do move on.

  • Report this Comment On March 17, 2010, at 11:15 PM, baldheadeddork wrote:

    The poll needs a none of the above option. Blockbuster once made a heck of a buggy whip, but they stuck with it far too long. I don't think saving it is worth the money or the pain to anyone.

  • Report this Comment On March 17, 2010, at 11:19 PM, Br0oklyn wrote:

    Should I bail on SIRI?

  • Report this Comment On March 18, 2010, at 1:18 AM, Ackumen wrote:

    Bail on SIRI? Well at this point you might as well ride it to an acquisition. Or you can frame the physical certificates as a reminder not to invest in

    AMZN has absolutely no reason to pick up BBI. They gain nothing from the retail stores or the express kiosks which will both be obsolete in three years.

  • Report this Comment On March 18, 2010, at 9:18 AM, DJDynamicNC wrote:

    I definitely see Coinstar as a possibility, now that you've pointed it out. Good call, I'd never have thought of that.

    Might be time to pick up some CSTR shares anyway, really, those Red Box machines are everywhere now, and the green coin counters too.

  • Report this Comment On March 18, 2010, at 10:04 AM, mikecart1 wrote:

    I have a sick feeling that BBI will become the 2010 version of SIRI. I am so tempted to drop a few G's on this badboy and buy myself a new car IF the price is right like Bob Barker!!!!

    You heard it here first guys and dolls.... BBI ain't leaving but instead will pop like never before.

  • Report this Comment On March 18, 2010, at 10:18 AM, bigcat1969 wrote:

    It is like asking who is going to pick up the fading horse drawn buggy business a hundred years ago. The business model is obsolete and is largely worth the fading value of the inventory.

    Amazon could err... sell lots of badly scratched disks online, Best Buy could put up a badly discredited name in their own stores and thereby tarnish the Best Buy name, NCR could extend their losses or Coinstar could finance the competition with nothing to gain.

    Love reading your stuff and it is often quite enlightening, but this is a stretch.

  • Report this Comment On March 18, 2010, at 10:19 AM, bigcat1969 wrote:

    It is like asking who is going to pick up the fading horse drawn buggy business a hundred years ago. The business model is obsolete and is largely worth the fading value of the inventory.

    Amazon could err... sell lots of badly scratched disks online, Best Buy could put up a badly discredited name in their own stores and thereby tarnish the Best Buy name, NCR could extend their losses or Coinstar could finance the competition with nothing to gain.

    Love reading your stuff and it is often quite enlightening, but this is a stretch.

  • Report this Comment On March 18, 2010, at 1:06 PM, mikecart1 wrote:

    It was a stretch when SIRI was saved in a single weekend. SIRI's product is just as bad as Blockbusters. SIRI sells radio at a price when you can get it for free, listen to CD's, or watch movies, or listen to MP3's. BBI sells a product that you can get for free in many 'obvious' ways. Also they lose to the movie theaters first. If someone watches a movie at the theater, that is essentially one lost customer for BBI on that movie for life.

  • Report this Comment On April 01, 2011, at 9:05 PM, BuffettIII wrote:

    Rick Aristotle Munarriz:

    I sure hope Blockbuster is the next Sirius XM because I own plenty of both.

    :)

    Buffett III

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